Long-Run Effects of the Korea-China Free-Trade Agreement
Journal of East Asian Economic Integration, Vol. 19, No. 2 (June 2015) 117-142
26 Pages Posted: 8 Jul 2015 Last revised: 6 Nov 2016
Date Written: June 30, 2015
This paper uses a 53-country 15-industry computable general equilibrium model of trade to analyze the effects of the Korea-China free trade agreement on the Korean economy, the manufacturing sector in particular. The model is based on Yaylaci and Shikher (2014) which uses the Eaton-Kortum ethodology to explain intra-industry trade. The model predicts that the Korea-China FTA will increase Korea-China manufacturing trade by 56%, manufacturing employment in Korea by 5.7% and China by 0.55%. The model also predicts significant reallocation of employment across industries with the Food industry in Korea losing jobs and other industries there gaining jobs, with the Medical equipment industry gaining the most. There will be some trade diversion from the ASEAN countries, as well as Japan and the United States.
Keywords: Korea-China Free Trade Agreement, Manufacturing Sector, Comparative Advantage, Employment, Trade Diversion
JEL Classification: F13, F17, F47
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