A CGE-Analysis on ASEAN+3 FTA: The Perspective of Labor Market Specification

• Main Authors: Shiao-Wei Lo, 羅曉蔚
• Other Authors: Tsung-Chen Lee
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/55795711127246168385

碩士 === 國立臺北大學 === 經濟學系 === 100 === The Association of South East Asian Nations (ASEAN) has been currently engaged in forming bilateral free trade agreements (FTAs) with non-ASEAN members. The ASEAN+3 proposal, an FTA with ASEAN, China, Japan and Korea, is particularly drawing great attention in Asia and the world, because of its economic power and influence. The current study evaluates the economy-wide impacts of ASEAN+3 mainly using a standard Computable General Equilibrium (CGE) model, which is under the assumption of perfect competition, full employment and perfect labor mobility. Therefore, no employment or labor issues can be addressed from this standard CGE model. However, the unemployment issue is closely related to economic development, and the reaction of the labor market to an exogenous shock has significant impacts on the outcome of the trade liberalization. Hence, a proper representation of the labor market in CGE models is important. Since ASEAN+3 does not reach any clear conclusion, the three countries start to form FTAs with ASEAN separately, namely, ASEAN-China FTA, ASEAN-Japan FTA and ASEAN-Korea FTA. In this thesis, an applied CGE model, Global Trade Analysis Project (GTAP) model, is employed to simulate the impacts of this alternative ASEAN+3. Because this thesis aims to highlight the role of labor market closure in assessing the impacts of an FTA, we design four simulation scenarios to compare the results and explain the influence of these different assumptions on the labor market. All simulation scenarios are explored in the standard GTAP model. The differences between the models lie in the model closure and the parameter of the labor mobility. The first simulation scenario uses a full employment closure with perfect labor mobility parameter settings. The second simulation scenario uses a full employment closure with labor immobility parameter settings. The third simulation scenario employs an unemployment closure with perfect labor mobility parameter settings. The forth simulation scenario employs an unemployment closure with labor immobility parameter settings. Simulation results show that the four simulation scenarios have quite different results. Generally, the third scenario would have the most appealing results, since this scenario can consider the effect of unemployed labor employed by industry in the event of an expansion of production, and can have better resource allocation for the perfect labor mobility assumption. The main results of this thesis are summarized as follows. The bilateral trade liberalization increases trade activity between member countries because the removal of bilateral tariffs on both sides of the border offers strong incentive for member countries to boost their exports and production. The trade liberalization will improve the member countries’ real GDP and welfare, while the non-member countries in East Asia would suffer economic loss. For example, the East Asian countries, China, Korea and Taiwan would suffer a real GDP loss and welfare decrease in all scenarios under the ASEAN-Japan FTA, and China, Japan and Taiwan would experience a decline in real GDP and welfare in all scenarios under the ASEAN-Korea FTA. Other non-member countries do not have a specific variation pattern under an FTA. Regarding the unemployment results, the ASEAN-Japan FTA would create more jobs for both skilled and unskilled labor in ASEAN and Japan. The ASEAN-Korea FTA would create more jobs for both skilled and unskilled labor in Korea as well as for unskilled labor in ASEAN, while the skilled labor in ASEAN would have fewer job opportunities.