Working Paper: NBER ID: w20424
Authors: Chunding Li; John Whalley
Abstract: FTA bilateral and regional negotiations in Asia have developed quickly in the past decade moving Asia ever closer to an economic union. Unlike Europe with the EU and the 1997 treaty of Rome and the 1993 NAFTA in North American, Asian economic integration does not involve a comprehensive trade treaty, but an accelerating process of building one bilateral agreement on another. For countries in Asia there is negotiation of a China-Japan-Korea agreement, a China-India agreement, a Trans-Pacific Partnership (TPP) agreement, and a Regional Comprehensive Economic Partnership (RCEP). This paper uses a fifteen-country global general equilibrium model with trade costs to numerically calculate Debreu distance measures between the present situation and potential full Asia integration in the form of a trade bloc. Our results reveal that these large Asia economies can be close to full integration if they act timely in agreements through negotiation. All Asia countries will gain from Asia trade bloc arrangements except when the Asia FTA can only eliminate tariffs. These countries' gain will increase as bilateral non-tariff elimination deepens. Larger countries will gain more than small countries. Asia FTA, Asia Union and RCEP will benefit member countries more than ASEAN+3. Global free trade will benefit all countries the most.
Keywords: trade bloc; Asia; FTA; economic integration; Debreu distance
JEL Codes: D58; D61; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| depth of FTA negotiations (removal of tariffs and non-tariff barriers) (F15) | economic benefits to member countries (F15) |
| timely agreements reached (F53) | all Asian countries gain from trade bloc arrangements (F15) |
| elimination of non-tariff barriers alongside tariffs (F13) | economic benefits to member countries (F15) |
| if only tariffs are eliminated (F10) | some larger countries may experience negative impacts (F69) |
| larger economies (P19) | benefit more than smaller ones under comprehensive FTA arrangements (F15) |
| trade cost reductions (F14) | potential benefits of trade bloc arrangements (F15) |