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

Author

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  • Warwick McKibbin
  • Jong-Wha Lee
  • Inkyo Cheong

Abstract

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

Suggested Citation

  • Warwick McKibbin & Jong-Wha Lee & Inkyo Cheong, 2004. "A dynamic analysis of the Korea-Japan free trade area: simulations with the G-cubed Asia-Pacific model," International Economic Journal, Taylor & Francis Journals, vol. 18(1), pages 3-32.
  • Handle: RePEc:taf:intecj:v:18:y:2004:i:1:p:3-32
    DOI: 10.1080/1351161042000180610
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    References listed on IDEAS

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    1. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-1075, December.
    2. McKibbin, Warwick J. & Wilcoxen, Peter J., 1998. "The theoretical and empirical structure of the G-Cubed model," Economic Modelling, Elsevier, vol. 16(1), pages 123-148, January.
    3. 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.
    4. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    5. Robert Scollay & John P. Gilbert, 2001. "New Regional Trading Arrangements in the Asia Pacific?," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa63, October.
    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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    Citations

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    Cited by:

    1. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2003. "Multilateral, Regional and Bilateral Trade-Policy Options for the United States and Japan," The World Economy, Wiley Blackwell, vol. 26(6), pages 803-828, June.
    2. ANDO Mitsuyo, 2009. "Impacts of FTAs in East Asia: CGE Simulation Analysis," Discussion papers 09037, Research Institute of Economy, Trade and Industry (RIETI).
    3. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2006. "Computational Analysis of the Menu of US-Japan Trade Policies," The World Economy, Wiley Blackwell, vol. 29(6), pages 805-855, June.
    4. Jong-Wha Lee & Innwon Park & Kwanho Shin, 2008. "Proliferating Regional Trade Arrangements: Why and Whither?," The World Economy, Wiley Blackwell, vol. 31(12), pages 1525-1557, December.
    5. Innwon Park, 2009. "Regional Trade Agreements in East Asia: Will They Be Sustainable? ," Asian Economic Journal, East Asian Economic Association, vol. 23(2), pages 169-194, June.
    6. Innwon Park, 2006. "East Asian Regional Trade Agreements: Do They Promote Global Free Trade?," Pacific Economic Review, Wiley Blackwell, vol. 11(4), pages 547-568, December.
    7. Kozo Kiyota & Robert M. Stern, 2007. "Economic Effects of a Korea-U.S. Free Trade Agreement," Working Papers 557, Research Seminar in International Economics, University of Michigan.
    8. Marcus Noland, 2003. "The Strategic Importance of US-Korea Economic Relations," Policy Briefs PB03-06, Peterson Institute for International Economics.
    9. McKibbin, Warwick J. & Wilcoxen, Peter J., 2013. "A Global Approach to Energy and the Environment," Handbook of Computable General Equilibrium Modeling, Elsevier.

    More about this item

    Keywords

    Japan; Korea; FTA; dynamic;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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