The Impact of Free Trade Agreements in Asia

This paper discusses a quantitative simulation analysis on the impact of Japan's FTAs in Asia using a CGE model of global trade. It has been argued that a regional FTA would be a step toward global trade liberalization rather than a final goal. In fact, it is shown that changes in sectoral trade balance and production would vary according to the partners in Japan's FTAs in Asia deviating from those expected in global trade liberalization. Moreover, the terms of trade effects would be relatively significant in determining the overall welfare impacts in partial trade liberalization. On the other hand, capital formation mechanisms, one through dynamic capital accumulation and another through international capital movements, are shown to be particularly important for macroeconomic gains in several ASEAN countries. It is suggested that liberalization and facilitation of not just the trade of goods but also investment would be essential for economic partnerships in Asia.