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A dynamic analysis of the Korea-Japan free trade area: simulations with the G-cubed Asia-Pacific model

  • Warwick McKibbin
  • Jong-Wha Lee
  • Inkyo Cheong

This paper explores the effects of the proposed free trade agreement between Japan and Korea. Our experiments are based on a new dynamic simulation model, called the Asia-Pacific G-cubed Model, which incorporates the rational expectations and intertemporal optimizing behaviour of agents. The simulations show that both Korea and Japan benefit from the bilateral FTA although other countries lose. The output gains from the FTA are estimated to be larger when trade liberalization is undertaken by a tariff reduction that is more gradually phased-in than rapid. JEL Classification: F15

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Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 18 (2004)
Issue (Month): 1 ()
Pages: 3-32

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Handle: RePEc:taf:intecj:v:18:y:2004:i:1:p:3-32
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  1. Gordon, R.H. & Bovenberg, A.L., 1994. "Why is capital so immobile internationally? : Possible explanations and implications for capital income taxation," Discussion Paper 1994-63, Tilburg University, Center for Economic Research.
  2. McKibbin, W.J. & Wilcoxen, P.J., 1995. "The Theoretical and Empirical Structure of the G-Cubed Model," Papers 118, Brookings Institution - Working Papers.
  3. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  4. Robert Scollay & John P. Gilbert, 2001. "New Regional Trading Arrangements in the Asia Pacific?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa63.
  5. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, vol. 49(2), pages 333-361, December.
  6. McKibbin, W.J., 1997. "Regional and Multiregional Trade Liberalization: The Effects on Trade, Investment and Welfare," Papers 134, Brookings Institution - Working Papers.
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