Potential Impacts of Trade Liberalization in Korea's Motor Vehicle Industry

In recent years, the United States has accused Korea of having an “anti-import” bias when it comes to motor vehicles. In other words, imports of foreign motor vehicles in Korea is “artificially low” because Korean consumers will not purchase foreign vehicles due to “nationalistic” or “patriotic” reasons. In this paper, we look at what would happen if consumers, either Korean or worldwide, eliminate their preference for domestic vehicles and judge both domestic and imported vehicles on equal criteria. To examine this possibility, we see what happens when substitution elasticities concerning consumption behavior is changed in the GTAP model. When the entire world eliminates its preference for domestic motor vehicles with a 1% increase in productivity for Korea’s motor vehicle industry, motor vehicle industry imports and exports for all countries will increase. In addition, the domestic production and trade balance of the motor vehicle industry, welfare, and GDP will rise or improve for motor vehicle net-exporting countries such as “Korea,” “Japan” and “EU”, while the variables for motor vehicle net-importing countries such as “US,” “Other Asia” and “Rest of the World” will fall or worsen.