Analysis On Economic Effects Of Constructing China-Korea FTA

Since 21st century, economic globalization develops rapidly, meanwhile, the integration of regional economy also gains unprecedented development trend. Many countries and regions regard joining Free Trade Area as an effective way to enter the economic globalization. After the financial crisis, both China and Korea speed up the integration process. May 2010, China and Korea signed a memorandum, ending the study of feasibility of free trade zone, preparing the free trade area agreement formally, and sharing ideas on sensitive parts actively.This paper analysises the economic effects of Constructing China-Korea Free Trade Area. First, this article describes the theory of Free Trade Area laiding a theoretical foundation. Second, this article outlines the complementary nature of China-Korea complementary and competitive, analyzing the premise and foundation of constructing the Free Trade Area. Again, based on previous chapters, this paoer uses the Linear Regression Model to measure the effects of the size of establishing China-Korea FTA on bilateral trade effects.Then this paper tests the IIT trend on Cointegration and Granger causality test method. Referencing the results KIEP (2005a) richarded who used a Computable General Equilibrium (CGE) model to simulation, this paper also analyzes the effects of GDP, welfare, trade conditions and the impact of foreign trade volume. Finally, according to the results of the analysis of the first two chapters and theoretical guidance, the paper gives a brief policy recommendations.There are two innovations in this article:from the perspectve of the impact of bilateral trade patterns and the effects of intra-industry trade, the paper uses the Cointegration Methods to discuss the construction of China-Korea.