The effects of economic integration in the Pacific Rim: A computational general equilibrium analysis

Abstract

We simulate the effects of economic integration in the Pacific Rim, using a multi-sector, multi-region, computational general equilibrium model. We use both a perfectly-competitive model (in which cross-hauling is explained by the Armington assumption) and a model with firm-level imperfect competition. Both the perfectly-competitive model and the imperfectly-competitive model suggest that a Pacific free-trade area (FTA) and an East-Asia FTA would generate gains for all member countries, even without the participation of Japan and the United States. The developing nations of Asia are expected to gain more when the United States joins the FTA than when Japan joins. The imperfectly-competitive model simulates substantially larger welfare gains than does the perfectly-competitive model. According to the imperfectly-competitive model, the newly-industrialized countries of Asia would reap very large gains from the establishment of a free-trade area.