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Economic Effects of a Korea-U.S. Free Trade Agreement


  • Kozo Kiyota
  • Robert M. Stern

    () (Research Seminar in International Economics, University of Michigan)


This study presents an analysis of the bilateral free trade agreement (FTA) that is being negotiated between Korea and the United States. The bilateral FTA negotiations were notified to the U.S. Congress by the United States Trade Representative in February 2006, and formal negotiations began in May 2006.1 It is anticipated that the negotiations may be completed and the agreement signed before mid-2007, which is when the current U.S. presidential negotiating authority expires. Once signed, the implementing legislation can be introduced in the U.S. Congress at any time. In Chapter 1, we set out what appear to be the primary objectives of the United States and Korea in their pursuit of an FTA. In Chapter 2, we review the existing studies of a Korea-U.S. FTA that have been done to date. Chapter 3 is devoted to comparative static and dynamic analyses of the FTA. We first provide an overview of the features and benchmark data of the Michigan Model of World Production and Trade, which is the computational general equilibrium (CGE) modeling framework that we use to analyze the economic effects of a Korea-U.S. FTA. Thereafter, we present the comparative static modeling results for the bilateral removal of tariffs and other trade barriers for agricultural products, manufactures, services, and all of these combined. This is followed by presentation of results of some dynamic computational scenarios that are specially constructed to take into account possible changes in capital formation that may be generated by the Korea-U.S. FTA. We then draw together the main conclusions from the review of previous studies and our own computational work. In Chapter 4, we provide a broader perspective on a Korea-U.S. FTA that takes into account alternative negotiating options for the two nations. These options include computational analyses of the other FTAs that each nation has concluded in recent years and that are currently in process. We also calculate the potential effects of the unilateral removal of trade barriers by the United States and Korea and the effects of global free trade in which all countries or regions covered in the model are assumed to remove their existing trade barriers on a multilateral basis. In Chapter 5, we present conclusions and implications for further research and policy.

Suggested Citation

  • 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.
  • Handle: RePEc:mie:wpaper:557

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    References listed on IDEAS

    1. Brown, Drusilla K. & Kiyota, Kozo & Stern, Robert M., 2005. "Computational analysis of the Free Trade Area of the Americas (FTAA)," The North American Journal of Economics and Finance, Elsevier, vol. 16(2), pages 153-185, August.
    2. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
    3. repec:wsi:wschap:9789812798091_0013 is not listed on IDEAS
    4. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2000. "Computational Analysis of the Accession of Chile to the NAFTA and Western Hemisphere Integration," The World Economy, Wiley Blackwell, vol. 23(2), pages 145-174, February.
    5. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Springer;Society for Computational Economics, vol. 9(2), pages 83-127, May.
    6. Drusilla K. Brown & Robert M. Stern, 2009. "Computable General Equilibrium Estimates of the Gains from US-Canadian Trade Liberalization," World Scientific Book Chapters,in: Globalization And International Trade Policies, chapter 13, pages 425-481 World Scientific Publishing Co. Pte. Ltd..
    7. 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.
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    Cited by:

    1. Kim Ruhl & Jack Rossbach & Timothy Kehoe, 2013. "Using the New Products Margin to Predict the Sectoral Impact of Trade Reform," 2013 Meeting Papers 1227, Society for Economic Dynamics.
    2. durongkaveroj, wannaphong, 2014. "CGE analysis of trade liberalization in Thailand," MPRA Paper 55191, University Library of Munich, Germany.
    3. Kehoe, Timothy J. & Rossbach, Jack & Ruhl, Kim J., 2015. "Using the new products margin to predict the industry-level impact of trade reform," Journal of International Economics, Elsevier, vol. 96(2), pages 289-297.

    More about this item


    Free trade; Korea (South); Commercial treaties;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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