The Economic Impact of FTAs - Model Simulation Analyses September 2006 Kenichi KAWASAKI ESRI, Cabinet Office 1 Overview Macroeconomic Impacts Possibility of “Free rider” gains Relative significance of regional trade liberalization Sectoral Aspects Impacts on sectoral trade and production Impacts of sectoral trade liberalization 2 The Impact of Trade Liberalization Static Impacts Expansion of exports and production of tradable goods More efficient resource allocation Dynamic Impacts Capital formation and economic growth Pro-competitive productivity improvements 3 Macroeconomic Impact of RTAs/FTAs Key Observations and Findings “Free rider” gains may be limited It is essential to liberalize own markets Wider liberalization would be much more beneficial FTAs would be steps toward a final goal 4 The Macroeconomic Impacts of Global Trade Liberalization (%) 35 30 25 20 15 10 5 0 -5 Real GDP Gains TL in Rest of the World TL in APEC na an a C ei ia ia es re nd m ia lia nd ia da A co ile ru a U ia ld rld hi ap ore HK aip nes ays pin po ila Na Ind tra ala an na US exi Ch Pe eric E uss or o C J K T do al ilip ga ha iet R fW W M m us Ze ce Ca e n T A A i M V h S s In /O r to w e P a s e i e n e th N As hi R O C r e th O 5 Regional vs. Global Trade Lib. (Real GDP Gains in Per cent) Malaysia Indonesia 15.0 12.0 9.0 6.0 3.0 0.0 8.0 6.0 4.0 2.0 0.0 l AN JCK Asia PEC loba E A A G st AS Ea 6.0 4.0 2.0 0.0 K C N al ia EA AJC t As APE Glob S s A Ea 8.0 6.0 4.0 2.0 0.0 N K C al ia EA AJC t As APE Glob S s A Ea K C N al ia EA AJC t As APE Glob S s A Ea Thailand Singapore 8.0 Philippines 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 N K C al ia EA AJC t As APE Glob S s A Ea Viet Nam 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 N K C al ia EA AJC t As APE Glob S s A Ea 6 Regional vs. Global Trade Lib. (Real GDP Gains in Per cent) China 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Japan 1.2 1.0 0.8 0.6 0.4 0.2 0.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 l AN JCK Asia PEC lob a E t A as A G AS E l AN JCK Asia PEC lob a E t A as A G AS E Australia Canada 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 N C K al ia EA AJC t As APE Glob S s A Ea Korea 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 N K C al ia EA AJC t As APE Glob S s A Ea l AN JCK Asia PEC lob a E t A as A G AS E USA 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 N C K al ia EA AJC t As APE Glob S s A Ea 7 Sectotal Aspects of RTAs/FTAs Key Observations and Findings Trade liberalization may result in a realignment of regional production in accordance with the comparative advantage of the regions The economic impact of wider trade liberalization covering more sectors would be greater 8 Global Trade Liberalization (Per cent Changes in Sectoral Production) China Japan 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Korea 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 -25.0 -30.0 GRA MET TXL TRN 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 -40.0 GRA MET Australia TXL TXL TRN TXL TRN 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 MET MET USA Canada 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 GRA GRA TRN GRA MET TXL TRN GRA MET TXL TRN 9 Global Trade Liberalization (Per cent Changes in Sectoral Production) Indonesia Malaysia 24.0 21.0 18.0 15.0 12.0 9.0 6.0 3.0 0.0 Philippines 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 GRA MET TXL TRN 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 GRA MET TXL Thailand Singapore TXL TRN MET TXL TRN TXL TRN Viet Nam 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 GRA MET GRA TRN 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 GRA MET TXL TRN GRA MET 10 The Impact of Sectoral Liberalization (%) 35 30 25 20 15 10 5 0 -5 Real GDP Gains Heavy manufacturing Light Manufacturing Agriculture and food na an a C ei ia ia es re nd m ia lia nd ia da A co ile ru a U ia ld rld hi ap ore HK aip nes ays pin po ila Na Ind tra ala an na US exi Ch Pe eric E uss or o C J K T do al ilip ga ha iet R fW W M m us Ze ce Ca e n T A A i M V h S s In /O r to w e P a s e i e n e th N As hi R O C r e th O 11
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