Ken Itakura

Dynamic Effects of the “New Age” Free Trade Agreement between Japan and Singapore

As manufacturing tariffs have fallen worldwide, the focus of free trade agreements has shifted towards other issues, including: rules governing foreign investment, e-commerce regulations, trade in services, harmonization of technical standards, sanitary and phyto-sanitary regulations, and the streamlining of customs procedures. Japan and Singapore are undertaking negotiations over this kind of “new-age” FTA. The purpose of this paper is to evaluate the impact of the FTA on production, consumption, trade, international investment flows, GDP and welfare. We use a modified version of the dynamic GTAP model, which is well-suited to capturing the impact of this new-age FTA over both the short run and the longer run. In addition to the proposed bilateral tariff cuts, our analysis takes account of the potential gains from implementing uniform standards for e-commerce in Japan and Singapore. The consequences of liberalizing rules governing direct trade in services are also considered. Finally, we seek to quantify the impact of automating customs procedures in Japan, making them compatible with the computer-based standards established by Singapore. This is projected to reduce the administrative costs and lag time in Japan’s exports to, and imports from, all destinations, thereby permitting products to be delivered in a more timely fashion. We find that the impacts of this new-age FTA on bilateral trade and investment flows are significant – with customs automization playing the most important role in driving increases in merchandise trade. The FTA also boosts rates of return in the two economies, thereby increasing both foreign and domestic investment as well as GDP. This causes the trade balance in both Japan and Singapore to deteriorate relative to baseline over the medium run, although it improves in the long run due to higher foreign income payments. The estimated global gains from this FTA are in excess of

The Contribution of Productivity Linkages to the General Equilibrium Analysis of Free Trade Agreements

US 9 billion annually, with the bulk of these gains accruing to Japan – which undertakes most of the reforms. Unlike preferential tariff cuts, the “new age” components of this FTA promote imports from all sources, thereby eliminating the problem of trade diversion.

WELFARE CHANGES AND SECTORAL ADJUSTMENTS OF ASIA-PACIFIC COUNTRIES UNDER ALTERNATIVE SEQUENCINGS OF FREE TRADE AGREEMENTS

Applied general equilibrium (AGE) analysis is often found to under-predict the increases in trade and economic growth that result from trade liberalization. One potential reason is that conventional AGE models ignore the strong correlations that exist between firm productivity, on the one hand, and exporting, importing, and investment, on the other. To examine this possibility, this study incorporates econometric evidence of these linkages into the dynamic Global Trade Analysis Project AGE model, and then uses this model to analyze a recently proposed East Asian free trade agreement. While conventional AGE modeling effects are found to predominate and be reinforced by the productivity effects, in some cases the latter actually reverse the changes predicted by the conventional effects.

Dynamic Modeling and Applications for Global Economic Analysis: An Overview of the Dynamic GTAP Data Base: The Data Base Construction and Aggregation Programs

In this paper, we compare welfare effects and the extent of sectoral adjustments of the member countries under alternative free trade agreement (FTA) sequencings in the Asia-Pacific region using a dynamic computable general equilibrium (CGE) model. If a Trans-Pacific Partnership (TPP) agreement under one sequencing and an East Asian FTA (EAFTA) under another sequencing will enter into force at the same time, followed by more enlarged FTAs, then a larger number of countries are expected to realize greater welfare gains under the Asia-track sequencing. However, given the uncertainty about the establishment of an Asia-wide FTA in the near future, the TPP-track sequencing appears to be an attractive option for most countries in the Asia-Pacific region. With respect to sectoral adjustments, there seem to be no significant differences among the alternative sequencings considered in this study.

Dynamic Modeling and Applications for Global Economic Analysis: Implementing the Dynamic GTAP Model in the RunDynam Software

The GDyn Data Base, used with the Dynamic GTAP model, is based on the GTAP Data Base (Dimaranan, 2005), which describes the global economy in a given year (2001 for the GTAP 6 Data Base). The GTAP Data Base is augmented with additional data required for the Dynamic version of the GTAP model. This chapter covers the preparation of these additional elements of the GDyn Data Base, 1 and the manipulation and aggregation of the GDyn Data Base with various utility programs. The focus is on the additional data requirements, with minimal discussion of the dynamic parameters. Readers interested in the underlying GTAP Data Base are referred to Dimaranan (2006). The GTAP data base (Dimaranan, 2006) is changed in the following three ways to obtain a database for GDyn: a) Six new arrays, listed in table 1, are added to the standard GTAP data file. The values of regional savings also change from those in the standard GTAP Data Base. The dimension of the array however does not change. These changes are discussed in section 2 below. b) A new parameters file contains the seven new parameters used in the dynamic theory (Table 2). The methodology for estimating econometrically, and in some 1 We have occasion at various points to refer to specific versions of the GDyn data base. We use a version numbering system of the form <GTAP release>:<GDyn version>. The element <GDyn version> is of the form <GDyn major version>.<GTAPDyn minor version>. We declare a new major version to mark a major difference in data content; a new minor version, to mark a change in format or a minor change in content. For example, version 6:1.0 of the GDyn data base is based on release 6 of the GTAP data base. Version 6:2.0 is based on the same GTAP release, but incorporates more recent GDyn specific data. At the time of writing, the current version is 6:2.0.

Impact of Liberalization and Improved Connectivity and Facilitation in ASEAN for the ASEAN Economic Community

The purpose of this chapter is to introduce the reader to the publicly available software – RunDynam – which is used to carry out the applications presented in Part III of this book. The RunDynam program is based on the GEMPACK suite of software (Harrison and Pearson, 1999), which is specifically designed to solve non-linear general equilibrium models. Other general equilibrium models solved using the GEMPACK software suite include the standard GTAP model and the Monash model of Australia. The RunDynam program has been specially tailored to the needs of the GDyn model and other dynamic models. It offer the user a great deal of flexibility in constructing simulations. It is available from the Centre of Policy Studies at Monash University, Australia.