Preliminary Assessment of the Economic Impacts of a Canada-Korea Free Trade Agreement

TRADE POLICY RESEARCH 2007, Dan Ciuriak, ed., pp. 187-234, Ottawa: Department of Foreign Affairs and International Trade, 2008

48 Pages Posted: 9 Feb 2010

See all articles by Dan Ciuriak

Dan Ciuriak

Ciuriak Consulting Inc.; Centre for International Governance Innovation (CIGI); C.D. Howe Institute; Asia Pacific Foundation of Canada; BKP Development Research & Consulting GmbH

Shenjie Chen

Government of Canada - Department of Foreign Affairs and International Trade (DFAIT)

Date Written: 2008

Abstract

This document assesses the economic impacts of a free trade agreement between Canada and Korea, using the Global Trade Analysis Project (GTAP) CGE model and version 6 of its database (base year 2001). Five alternative scenarios are simulated based on a range of assumptions concerning the supply-side responses of the two economies to expanded bilateral trade. We find that choice of closure assumptions heavily influences the scale (and even the sign) of the welfare impacts and the breakdown of the economic impacts between output and terms of trade. The default closure within the GTAP modelling framework of fixed labour and capital supply, which is equivalent to assuming zero supply elasticities for factor inputs, results in terms of trade gains dominating output gains, an outcome that in our view is unlikely for small, open economies like Canada and Korea. Our central scenario incorporates the assumptions which in our view are best suited for Canada and Korea respectively; this yields larger economic gains for both countries, with a more reasonable breakdown between output and terms of trade impacts.

Keywords: free trade agreement, FTA, Canada, Korea, CGE model, closure

JEL Classification: F14, F15, F17

Suggested Citation

Ciuriak, Dan and Chen, Shenjie, Preliminary Assessment of the Economic Impacts of a Canada-Korea Free Trade Agreement (2008). TRADE POLICY RESEARCH 2007, Dan Ciuriak, ed., pp. 187-234, Ottawa: Department of Foreign Affairs and International Trade, 2008. Available at SSRN: https://ssrn.com/abstract=1549551

Dan Ciuriak (Contact Author)

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
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Asia Pacific Foundation of Canada ( email )

Canada

HOME PAGE: http://ciuriakconsulting.com/

BKP Development Research & Consulting GmbH ( email )

Romanstrasse 74
M√ľnchen, 80639
Germany

Shenjie Chen

Government of Canada - Department of Foreign Affairs and International Trade (DFAIT) ( email )

125 Sussex Drive
Ottawa K1A 0G2, Ontario
Canada
613-944-0376 (Phone)
613-944-0375 (Fax)

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