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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

Author

Listed:
  • 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.

Suggested Citation

  • Philip D. Adams & Karen M. Huff & Robert McDougall & K.R. Pearson & Alan A. Powell, 1996. "Medium- and Long-run Consequences for Australia of an APEC Free Trade Area: CGE Analyses using the GTAP and MONASH Models," Centre of Policy Studies/IMPACT Centre Working Papers g-111, Victoria University, Centre of Policy Studies/IMPACT Centre.
  • Handle: RePEc:cop:wpaper:g-111
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    Citations

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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. 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).
    3. Marcos Minoru Hasegawa, 2010. "The Tax Policy in the Chilean Economy: a Regional Applied General Equilibrium Analysis," Documentos de Trabajo en Economia y Ciencia Regional 05, Universidad Catolica del Norte, Chile, Department of Economics, revised Dec 2010.
    4. Nigel Grimwade & David G. Mayes & Jiao Wang, 2011. "Estimating the Effects of Integration," Chapters,in: International Handbook on the Economics of Integration, Volume III, chapter 13 Edward Elgar Publishing.
    5. 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..
    6. 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.
    7. 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.
    8. Hasegawa, Marcos & Guilhoto, Joaquim José Martins, 2006. "Investimento e produtividade dos fatores primários: uma análise de equilíbrio geral aplicado
      [Investment and productivity of primary factors: a general applied general equilibrium analysis]
      ," MPRA Paper 54555, University Library of Munich, Germany.
    9. 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.
    10. 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.
    11. Hertel, Thomas W. & Masters, William A. & Gehlhar, Mark J., 1997. "Regionalism in World Food Markets: Implications for Trade and Welfare," 1997 Conference, August 10-16, 1997, Sacramento, California 197046, International Association of Agricultural Economists.
    12. Adams, Philip D., 2005. "Interpretation of results from CGE models such as GTAP," Journal of Policy Modeling, Elsevier, vol. 27(8), pages 941-959, November.
    13. 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.

    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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