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

In this paper, we investigate the economic impacts of possible free trade agreements(FTAs) among China, Japan, and Korea, and then compare the GDP and welfare effects of those FTAs. To conduct the investigation, we employ a multi-region, multi-sector static computable general equilibrium (CGE) model with 6 regions, 12 sectors and 5 endowments, assuming that land, unskilled labor and natural resource are not mobile among the regions and that skilled labor and capital are mobile among them. Considering four possible FTA scenarios, we examine the economic effects of the FTAs and then rank them to show which form of FTA is most beneficial for each country. For the best FTA outcome, Korea would establish an FTA with China; China would form a trilateral FTA with Korea and Japan; and Japan would choose to form a trilateral FTA with China and Korea. In addition, we provide the output and trade effects of two different FTA scenarios for Korea.