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Medium- and Long-run Consequences for Australia of an APEC Free Trade Area: CGE Analyses using the GTAP and MONASH Models

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  • Philip D. Adams
  • Karen M. Huff
  • Robert McDougall
  • K.R. Pearson
  • Alan A. Powell

Abstract

Two large applied general equilibrium models, GTAP and MONASH, are used in this paper to simulate the elimination of trade barriers among the members of APEC. These models focus respectively on global trading relations and on the detailed sectoral, occupational, and regional dimensions of the Australian economy. We find that the mature industrialized members of APEC are likely to experience modest increases in real GDP from the trade reform, but that there is scope for very big advances in real GDP in some Asian member countries (especially those with high initial trade barriers against imports of capital goods). Relative to base case, Thailand/ Philippines (treated as a single aggregate in these simulations) is projected (after an adjustment period of one to two decades) to have the potential for a 39 per cent rise in GDP due to the formation of an APEC trade block. Other countries reaching double figures are South Korea (14 per cent), New Zealand (11 per cent) and Indonesia (10.5 per cent). These increases are partly at the expense of non-APEC countries which experience on average a 1 per cent fall in GDP due to lost markets and deteriorating terms of trade. A substantial limitation of these projections is that we have not been able to keep track of the ownership of assets; thus rises in GDP do not necessarily imply increases in welfare. The potential long-run increases in APEC members' GDP are highly dependent on international capital mobility. Relative to the case of full mobility, limiting capital growth to what can be financed internally within regions causes the sizes of the projected increases to fall in all member regions except North America. In the case of Thailand/ Philippines, the 39 per cent increase falls dramatically to about 2.5 per cent. The projected long-run rise in Australia's GDP when capital is mobile is about 3 per cent (relative to the no-APEC case). Considerable structural changes accompany this rise: milk and meat products do extremely well (with rises in real output of over 30 per cent relative to base case); traditionally highly protected industries (e.g., synthetic fibres, cotton yarns, footwear and motor vehicles) experience long-run falls of approximately 10 to 20 per cent. Over two thirds of the gain in the rise in the demand price for Australian milk products is due to the opening up of the Japanese market.

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Bibliographic Info

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number g-111.

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Date of creation: Dec 1996
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Handle: RePEc:cop:wpaper:g-111

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References

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  1. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Society for Computational Economics, vol. 9(2), pages 83-127, May.
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Cited by:
  1. Terrie Walmsley, 1998. "LONG-RUN SIMULATIONS WITH GTAP: Illustrative Results from APEC Trade Liberalisation," Centre of Policy Studies/IMPACT Centre Working Papers ip-70, Victoria University, Centre of Policy Studies/IMPACT Centre.
  2. Rina Oktaviani & Eka Puspitawati & Haryadi, 2008. "Impacts of ASEAN Agricultural Trade Liberalization on ASEAN-6 Economies and Income Distribution in Indonesia," Working Papers 5108, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
  3. Philip D. Adams & Mark Horridge & Brian Parmenter & Xiao-Guang Zhang, 1998. "Long-run Effects on China of APEC Trade Liberalisation," Centre of Policy Studies/IMPACT Centre Working Papers g-130, Victoria University, Centre of Policy Studies/IMPACT Centre.
  4. G.A. Meagher, 1997. "Structural Change, the Demand for Skilled Labour and Lifelong Learning," Centre of Policy Studies/IMPACT Centre Working Papers g-121, Victoria University, Centre of Policy Studies/IMPACT Centre.
  5. Oktaviani, Rina & Amaliah, Syarifah & Ringler, Claudia & Rosegrant, Mark W. & Sulser, Timothy B., 2011. "The impact of global climate change on the Indonesian economy:," IFPRI discussion papers 1148, International Food Policy Research Institute (IFPRI).
  6. Guilhoto, Joaquim José Martins & Hasegawa, Marcos & Lopes, Ricardo Luis, 2002. "A estrutura teórica do modelo inter-regional para a economia brasileira - MIBRA
    [The theoretical structure of inter regional model for the Brazilian economy - MIBRA]
    ," MPRA Paper 54019, University Library of Munich, Germany.
  7. G.A. Meagher, 1996. "Coordinating Policies for Human Resources Development," Centre of Policy Studies/IMPACT Centre Working Papers g-118, Victoria University, Centre of Policy Studies/IMPACT Centre.
  8. Ben Hammouda, Hakim & Oulmane, Nassim & Bchir, Hédi & Sadni Jallab, Mustapha, 2006. "The Cost of non-Maghreb: Achieving the Gains from Economic Integration," MPRA Paper 13293, University Library of Munich, Germany.

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