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GTAP Resource #1762

"The Sectoral and Regional Implications of Trade Liberalization"
by Kawasaki, Kenichi


Abstract
Although negative impacts due to trade diversion effects and the terms of trade effects are suggested by theoretical studies, empirical analyses, including model simulations, have generally indicated macroeconomic benefits from trade liberalization. The impact of trade liberalization measures would be more widely observed at sectoral levels compared with those changes in income and production at the macro level. Moreover, those impacts on income distribution are much more concerned about balanced developments among the regions within a particular country.

The purpose of this paper is to discuss the sectoral and regional rather than macroeconomic implications of trade liberalization on the Japanese economy by quantitative simulation analyses using a CGE model of global trade. In model simulations, the dynamic impacts of trade liberalization through capital formation mechanisms and productivity improvements are taken into account in addition to standard static efficiency gains. It also provides the most updated estimates on this subject based on the GTAP database version 6.

Trade liberalization measures would result in a realignment of regional trade and protection in accordance with the comparative advantage of the regions. As a result of global trade liberalization, output will increase in transport equipment in Japan, in textiles and apparel in ASEAN countries, China, and Asian NIEs, in agriculture and food industries in Australia, and in agriculture in North America. On the other hand, production in agricultural and food sectors would shrink in Japan.

The relative significance of those adjustment costs in comparison with macroeconomic benefits may vary according to the partner of bilateral FTAs. Agricultural production would shrink most significantly under a Japanese FTA with the United States. Such a loss for Japan would be relatively larger from FTAs with geographically larger economies like Australia, Canada, China, and the EU as a whole. On the other hand, as far as real GDP gains are concerned, China is ranked as the top trading partner of Japan. This position is followed by developed economies like the EU, North America, and Oceania, rather than most Asian economies. Therefore, Japan would gain relatively more in real GDPs from FTAs with China, the EU, Thailand, and Korea in comparison with those losses in agricultural production. On the contrary, Japan would lose relatively more from FTAs with the Unites States, Australia, and Canada.

Japanese real GDP gains would largely come from trade liberalization in heavy manufacturing industries. However, trade liberalization in agriculture and food industries would also be beneficial. Japanese consumers would also mainly benefit from agricultural and food trade liberalization. Moreover, Japanese exporters, i.e. producers, would largely gain from trade liberalization in other manufacturing sectors. On the other hand, in breaking down the welfare gains measured by changes in Equivalent Variation (EV), agricultural and food trade liberalization would be a major source of those gains due to more efficient resource allocation. Heavy manufacturing trade liberalization would be a vital source of the terms of trade gains. Trade liberalization, both in the primary and the secondary industries, would be much more beneficial to Japan without discrimination in certain sectors.

Trade liberalization might more or less benefit all of Japanfs prefectures. However, the ratio of agricultural production, which is estimated to shrink according to trade liberalization, is higher in lower-income prefectures. On the contrary, the ratio of transport equipment production, which is estimated to expand according to trade liberalization, is higher in higher-income prefectures. Regional differences in income levels would be expanded given such current structures of industries by regions.

Trade and protection structures shown in actual data as well as those behaviors represented by parameters like demand and price elasticities vary widely at very individual levels of commodities and industries. The significance of aggregation biases in model simulations is suggested, not just in terms of the precise and detailed descriptions of individual sectors, but also in terms of looking at the impact at the macroeconomic level.


Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2005 Conference Paper
Status: Published
By/In: Presented at the 8th Annual Conference on Global Economic Analysis, Lübeck, Germany
Date: 2005
Version:
Created: Kawasaki, K. (5/1/2005)
Updated: Batta, G. (6/21/2005)
Visits: 1,420
No keywords have been specified.


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