INSIDE GLOBAL ISSUES
Working Paper No. 201311
How Far is Asia Already Surrogate Trade Bloc?
Li Chunding, John Whalley
Abstract
This paper is the first exploration to numerically calculate the Debreu (1951) coefficient, and to introduce Debreu distance indicator in free trade agreement (FTA) effect measures. In the meanwhile, FTA negotiations in Asia developed very fast in the past decade which made it important to evaluate how far Asia has already surrogate trade bloc. This paper uses a fifteen-country global general equilibrium model with trade cost to numerically calculate Debreu distance between present situation and potential Asia trade blocs, so as to evaluate these Asia FTA effects. Our calculation results reveal that all Asia involved countries will gain from Asia trade bloc arrangements unless these FTAs can only eliminate tariffs. These countries’ gain will increase as non-tariff elimination deeps. 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 gain all countries the most.
Keywords: Asia Trade Bloc; Debreu Distance Coefficient; Trade Cost; RCEP
1. Introduction
Debreu (1951, Econometrica) coefficient measure is an important resource utilization calculation method, and is universally cited in literatures. But nearly no researches have ever numerically used this measurement in application until now, only very few articles in which this measurement played a mere tangential role, including Raa (2008), Ahlheim et al (1988), Anderson and Neary (1996), Brown and Srinivasan (2007). Riezman, Whalley and Zhang (2006) uses distance measures to estimate free trade effects but is not Debreu’s coefficient distance. This paper will be the first to numerically calculate Debreu coefficient.
Computational general equilibrium methodology has been widely used in exploring free trade agreement (FTA) effects. Within them, Hicks (1943) welfare variation measures are common index for surveying FTA influence, but Debreu coefficient has never been used. This paper injects the Debreu distance indicator into exploring FTA effects by the first time.
Asia’s FTA develops slower than north American and Europe. Until now, there is no comprehensive FTAs in Asia area. But in the past decade, FTA arrangements and negotiations grow very fast in Asia. Especially after global financial crisis in 2008, Asia becomes the most active place in FTA negotiations and developments. At present, some important negotiations are in progression, including Regional Comprehensive Economic Partnership (RCEP), Trans-Pacific Partnership (TPP), ASEAN Plus Three (APT), China-Japan-South Korea FTA, and etc. In the future, Asia may form some comprehensive trade blocs. Under these circumstances, it will be very important in policy side to numerically explore how far Asia is already surrogate trade bloc as well as what will be the effects of potential Asia blocs.
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2. Asia FTAs and Their Developments
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3. Debreu’s Coefficient and Distance Measure
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4. Model Structure and Trade Cost Calculation
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5. Data and Parameters Calibration
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6. Simulation Results
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