The economic effects of Asia-Pacific Economic Cooperation (APEC) and Asia-based free trade area (AF-11): A computational general equilibrium approach

The possibility of a free trade area in the Asia-Pacific region has been discussed at several international conferences, such as the Pacific Economic Cooperation Conference and the Asia Pacific Economic Conference. The trends of the world economy are likely to strengthen economic cooperation in the area.;Even though many authors suggest that trade liberalization in the Asia-Pacific area would accelerate development, there is very little empirical evidence about the adjustment process which would follow the formation of such a free trade area (FTA). Thus, I intend to study the possibilities of Asia-Pacific free trade (APEC) and Asia-based free trade area (AF-11 FTA). I will perform simulations with a computational general equilibrium (CGE) model, in order to look at welfare changes under different combinations of member countries with APEC and AF-11. Since perfectly-competitive CGE models tend to underestimate the welfare effects of a FTA, I build a CGE model with increasing returns to scale and firm-level product differentiation. If a group of countries in the Pacific Rim can improve welfare by forming a FTA, this group will be a possible candidate for a new FTA in the Pacific Rim.;The main results can be summarized as follows: (1) The groupings of regions seem to be important for a formation of a free-trade area in the Pacific-Rim region. From our simulations, the highest probable regional cooperation scenario will be a FTA of Australia/New Zealand, China/Hong Kong, the Asian newly-industrialized countries, and the ASEAN nations except Thailand. (2) The introduction of imperfect competition into the model projects large discrepancies between the simulations from the perfectly-competitive CGE model and the model with an imperfectly-competitive component. (3) The results of the simulations are very robust with respect to the choices of parameters.