Regional Effects of Trade Liberalization in Japan: A CGE Analysis Based on an Interregional Input-Output Table

Abstract

Since the 1990s, computable general equilibrium (CGE) analysis has been widely used as a tool for evaluating the quantitative effects of trade policy, and many CGE studies have concerned trade liberalization in Japan. However, no study has attempted to examine the regional effects of liberalization; that is, how trade liberalization affects individual Japanese regions. Given that trade liberalization is likely to generate dissimilar effects in different regions, and because concern with regional disparities has grown, it is of great importance to analyze the regional effects of trade liberalization. Using a bottom-up regional CGE model, this paper quantitatively evaluates the regional effects of trade liberalization in Japan. We use a static single-country model with 23 sectors and 8 domestic regions and the Interregional Input.Output Table for Japan 2000 as the benchmark data. The main results are as follows. First, trade liberalization increases welfare and GDP in Japan as a whole. This finding is consistent with previous studies in this area. Second, the magnitude of the GDP and welfare effects differs significantly across regions. In particular, high-income regions like Kanto, Chubu and Kinki have large gains while low-income regions like Hokkaido, Tohoku and Kyushu-Okinawa have small (or negative) gains. That is, trade liberalization exacerbates existing regional disparities. These results indicate that if policy makers have an interest in regional disparity, they should implement some form of redistributive policy in conjunction with trade liberalization.