A CGE Analysis of Free Trade Agreements among China, Japan, and Korea

In this paper, we investigate the economic impacts of possible FTAs among China, Japan, and Korea and then compare the GDP and welfare effects of FTAs. In order to make a CGE analysis, we employ a multi region, multi sector static CGE model with 5 regions, 12 sectors and 5 endowments, assuming that land, unskilled labor and natural resource cannot mobile among the regions and that skilled labor and capital can mobile among them. Considering four possible FTA scenarios (FTA CJK, FTA KC, FTA KJ, and FTA CJ), we examine the economic effects of FTAs and then show which form of FTAs is most beneficial for each country. For the best scenario of FTA policy, Korea would establish an FTA with China; China would like to form a trilateral FTA with Korea and Japan; Japan would not care much about an FTA with Korea, but for the optimal results Japan, like China, would choose to form a trilateral FTA with China and Korea. In addition, we provide the output and trade effects of FTA KC and FTA CJK.