The Analysis Of Free Trade Agreement's Welfare Implications

It has been so popular to establish free trade agreements among countries in today's world that all countries have established or plan to sign all kinds of free trade agreements. The East Asia's economic, mainly consisting of China, Japan and Korea, has made up 90% of the total Asia's economic scale. However, there have not been any forms of FTAs signed among China, Japan and South Korea. Since China-ASEAN Free Trade Agreement has been successfully signed in 2001, the future of the cooperation among China, Japan and Korea, the three most important economic bodies in Asia, has attracted more and more attentions. This paper tries to explain how to evaluate the welfare implications of FTAs through both the theoretical and empirical analysis, taking FTA among China, Japan and Korea as the example.In the theoretical part of this dissertation has introduced conception about FTA and the theory basis of its forming as well as the theory about FTA's welfare implication.The dissertation also employs several models in empirical studies, such as Balassa model, gravity model, CGE model, intra-industry index, revealed comparative advantage and so on.The empirical analysis emphasized on the trend, future and possibility of FTA among China, Japan and Korea as well as the compares of each kind of FTA's welfare implications among the three countries. First, the dissertation introduces the current situation of the economy and trade relationship between the three countries and uses the indexes as RCA, IIT and so on to analyze the trade structure and the industry structure, which is the basic field to analyze the establishment of FTAs. Generally speaking, all the countries hope to enlarge the trade scale, attract foreign trade investment (FDI), to optimize their industry structure through removing trade barriers. The prerequisite of forming a FTA is to know the trade situation and commodity structure and analyze the competition and complementation of the concerned countries. Then by analyzing the results the CGE model is used to simulate the welfare implications of all the possible forms of FTAs among China, Japan and Korea and compares of them to know which one is the best choice. The results tell us that the China-Japan-Korea FTA is the best choice.In the end, considering the difficulties, the paper suggests that China and Korea should firstly establish a FTA and absorb Japan into it in the second step to realizing the establishment of the China-Japan-Korea FTA finally.