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Productivity Versus Employment: Quantifying the Economic Effects of an EU–Japan Free Trade Agreement

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  • Sebastian Benz
  • Erdal Yalcin

Abstract

type="main" xml:id="twec12205-abs-0001"> The European Union and Japan recently entered into negotiations over a bilateral free trade agreement intended to stimulate growth and create wealth. Since customs duties are already low, the success of the liberalisation process hinges on the elimination of non-tariff barriers. The purpose of this paper is to shed light on two possible liberalisation scenarios: a less ambitious liberalisation and a comprehensive liberalisation. In contrast to classic studies, our paper builds on the modern trade literature, accounting for the dominance of intra-industry trade in both economies and the existence of heterogeneous firms. Furthermore, we model a search-and-matching labour market, allowing us to quantify employment effects of trade liberalisation. We find that a comprehensive liberalisation increases Japanese GDP by 0.86 per cent, whereas the EU experiences only an additional 0.21 per cent of real GDP growth. Most of the growth in real GDP is due to firms' efficiency gains, whereas unemployment is reduced by only a small amount. Other world regions experience small reductions of GDP due to trade diversion effects.

Suggested Citation

  • Sebastian Benz & Erdal Yalcin, 2015. "Productivity Versus Employment: Quantifying the Economic Effects of an EU–Japan Free Trade Agreement," The World Economy, Wiley Blackwell, vol. 38(6), pages 935-961, June.
  • Handle: RePEc:bla:worlde:v:38:y:2015:i:6:p:935-961
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    References listed on IDEAS

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    Cited by:

    1. Felbermayr, Gabriel & Kimura, Fukunari & Okubo, Toshihiro & Steininger, Marina, 2019. "Quantifying the EU-Japan Economic Partnership Agreement," Journal of the Japanese and International Economies, Elsevier, vol. 51(C), pages 110-128.
    2. Monica Hernandez, 2019. "The Rising Importance of Non-tariff Measures and their use in Free Trade Agreements Impact Assessments," GDAE Working Papers 19-03, GDAE, Tufts University.
    3. Hanns Günther Hilpert, 2019. "The Japan-EU Economic Partnership Agreement: Opportunities and Pitfalls," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 20(02), pages 10-16, July.
    4. Philip Aanderud & Stefan Nippes & Erdal Yalcin, 2015. "»Abenomics« – Strukturreformen in Japan," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(14), pages 29-40, July.

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