The effects of US-Japan trade agreements on production, sales, factor demand, and price in competition and firm structure

Abstract

This study analyzes the integrated effects of the USJTA, USJDTA, and the agreement on minerals for electric vehicle batteries. While most previous studies adopted the perfect competitive Armington model to analyze the economic effect of FTAs, it is unrealistic since monopolistic competition is taking place in export markets. To overcome those gaps, this study introduces the computable general equilibrium framework with monopolistic heterogeneity. The empirical results utilize the GTAP-HET transformed data using seven commodity sectors and seven countries which consist of four developed countries such as US, Japan, Canada and the EU and three developing countries such as China, Mexico, and the ROW. The new finding shows that the changes in industry outputs, domestic industry sales, demand for labor and capital, industry sector price, and terms of trade appeared significantly different according to perfect, monopolistic competition, and firm heterogeneity models.