Province-Level Impacts of Canada's Trade Agreements: Ontario and the Canada-Korea FTA

Abstract

Canada has recently concluded free trade agreements (FTAs) with two major economies, one trans-Atlantic (the EU) and one trans-Pacific (Korea); as well, it is negotiating a still larger agreement with Pacific Rim countries in the Trans-Pacific Partnership (TPP) initiative. From an economic geography perspective, Canada’s provinces stand to be affected very differently by these agreements, depending on their geographic location within Canada (proximity to the west coast versus the east coast). As well, given the highly asymmetric degree of liberalization across different sectors that these agreements entail, provinces stand to be affected differentially based on their areas of specialization in trade and, thus, their degree of trade exposure to sectors undergoing relatively deeper liberalization. However, there is no existing multi-country computable general equilibrium (CGE) model that is capable of simulating the impact of such agreements on Canada’s provinces as separate trading entities, including the impact on interprovincial trade flows, which would also be impacted by international trade liberalization. In this study, we introduce a hybrid approach to developing estimates of FTA impacts on Canada’s provinces, using a dynamic version of the Global Trade Analysis Project (GTAP) model to generate Canada-level impacts, which are then decomposed on the basis of computable partial equilibrium (CPE) model simulations of the same agreements. We demonstrate the approach by developing the impacts of the Canada-Korea FTA on Ontario.