Assessment of the Proposed India-China Free Trade Agreement: A General Equilibrium Approach

Abstract

PurposeThe present study is an attempt to evaluate the impact of the proposed India-China free trade agreement (FTA) in goods trade on both countries under a static general equilibrium framework.Design/Methodology/ApproachThe study has utilized the Global Trade Analysis Project (GTAP) model of world trade with the presence of skilled and unskilled unemployment in the world. For analysis purposes, 57 GTAP sectors, representing the whole regional economy, have been aggregated into 43 sectors and 140 GTAP regions, representing the whole world, have been aggregated into 19 regions. The study has also used the updated tariff rates provided by the World Trade Organization for better results.FindingsThe preliminary analysis using trade indicators depicted that by utilizing their own comparative advantage, both of the countries can maximize their gains by exporting more to the world. The simulation results from the GTAP analysis revealed that a tariff reduction in all goods trade would be more beneficial for both the countries than the tariff reduction in each other's specialized products. All other regions lose in terms of shifting the Indian imports towards China in a post-simulation environment. Regions with a significant loss are: the European Union (28 members), Southeast Asia, the Unites States, Japan, Korea, West Asia, and the European Free Trade Association (EFTA).Originality/ValueThe disaggregated sector-wise analysis has been performed using the latest available GTAP database, version 9.