Productivity Versus Employment: Quantifying the Economic Effects of an EU–Japan Free Trade Agreement

27 Pages Posted: 22 Jun 2015

See all articles by Sebastian Benz

Sebastian Benz

Organization for Economic Co-Operation and Development (OECD)

Erdal Yalcin

University of Applied Sciences Konstanz; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: June 2015

Abstract

The European Union and Japan recently entered into negotiations over a bilateral free trade agreement intended to stimulate growth and create wealth. Since customs duties are already low, the success of the liberalisation process hinges on the elimination of non‐tariff barriers. The purpose of this paper is to shed light on two possible liberalisation scenarios: a less ambitious liberalisation and a comprehensive liberalisation. In contrast to classic studies, our paper builds on the modern trade literature, accounting for the dominance of intra‐industry trade in both economies and the existence of heterogeneous firms. Furthermore, we model a search‐and‐matching labour market, allowing us to quantify employment effects of trade liberalisation. We find that a comprehensive liberalisation increases Japanese GDP by 0.86 per cent, whereas the EU experiences only an additional 0.21 per cent of real GDP growth. Most of the growth in real GDP is due to firms' efficiency gains, whereas unemployment is reduced by only a small amount. Other world regions experience small reductions of GDP due to trade diversion effects.

Suggested Citation

Benz, Sebastian and Yalcin, Erdal, Productivity Versus Employment: Quantifying the Economic Effects of an EU–Japan Free Trade Agreement (June 2015). The World Economy, Vol. 38, Issue 6, pp. 935-961, 2015, Available at SSRN: https://ssrn.com/abstract=2621100 or http://dx.doi.org/10.1111/twec.12205

Sebastian Benz (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

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Paris Cedex 16, 75775
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Erdal Yalcin

University of Applied Sciences Konstanz ( email )

Alfred-Wachtel-Straße 8
Konstanz, 78462
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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