The Impacts of East Asia FTA: A CGE Model Simulation Study

Abstract

In light of the on-going discussions of the possibility of an East Asia FTA, this paper attempts to estimate the impacts of an East Asia FTA using a Computable General Equilibrium (CGE) model. Although most previous simulation studies on the impacts of FTAs focus only on the liberalization of trade in goods, our paper attempts to take into account other aspects of FTAs such as capital accumulation and trade and investment facilitation measures. Our simulation analysis finds that an ASEAN 3 FTA is the most desirable FTA of eight hypothetical FTAs in East Asia to all member countries at the macro level. At the same time, our results demonstrate the significant impacts of capital accumulation and various trade and investment facilitation and coordination programs. At the sectoral level, many sectors gain in terms of output and trade. Although some sectors in certain countries indeed lose in terms of output as a result of an ASEAN 3, most of them experience increases in both exports and imports, even if output declines. These results indicate that the larger the coverage in terms of membership as well as contents such as trade and FDI liberalization and facilitation, and economic cooperation is, the greater benefits can be accrued to the members.