1 The Economic Impact of FTAs - Model Simulation Analyses - September 2006 Kenichi KAWASAKI ESRI, Cabinet Office

2 Overview Macroeconomic Impacts Possibility of “Free rider” gains Relative significance of regional trade liberalization Sectoral Aspects Impacts on sectoral trade and production Impacts of sectoral trade liberalization

3 The Impact of Trade Liberalization Static Impacts Expansion of exports and production of tradable goods More efficient resource allocation Dynamic Impacts Capital formation and economic growth Pro-competitive productivity improvements

4 Macroeconomic Impact of RTAs/FTAs Key Observations and Findings “Free rider” gains may be limited It is essential to liberalize own markets Wider liberalization would be much more beneficial FTAs would be steps toward a final goal

5 The Macroeconomic Impacts of Global Trade Liberalization

6 Regional vs. Global Trade Lib. (Real GDP Gains in Per cent)

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8 Sectotal Aspects of RTAs/FTAs Key Observations and Findings Trade liberalization may result in a realignment of regional production in accordance with the comparative advantage of the regions The economic impact of wider trade liberalization covering more sectors would be greater

9 Global Trade Liberalization (Per cent Changes in Sectoral Production)

10 Global Trade Liberalization (Per cent Changes in Sectoral Production)

11 The Impact of Sectoral Liberalization