The effects of the free trade agreement among China, Japan and South Korea

Abstract

A computable general equilibrium model is used to evaluate the economic effects of a free trade agreement among China, Japan, and South Korea on the world economy. This study is focused on estimating trade creation and diversion effects of the FTA. Results show that there are strong trade diversion effects of the FTA between the member countries and the rest-of-the-world. This is especially true for trade in the high-technology manufacturing sector between the U.S and China. This study also reveals that the member countries under the FTA tend to specialize on the basis of resource endowments, but there exists a significant amount of intra-industry trade among the member countries in all sectors except agricultural and service/utility sectors. In addition, the FTA stimulates the economies of the three countries through increased trade volume, but provides a significant negative effect on economies of non-member countries.