A Study on Economic Effects of the Economic Cooperation Framework Agreement between China and Taiwan: A CGE Approach

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초록

The objective of this paper is to conduct a quantitative assessment of the potential economic effects of the Economic Cooperation Framework Agreement (ECFA) between the governments of the People's Republic of China (mainland China) and the Republic of China (Taiwan) using a multi-region, multi-sector CGE model. Since Korean companies compete with Taiwanese companies in the Chinese market, an impact analysis of the economic effects of the ECFA is of great importance not only to the Korean government, but also to the Korean companies doing business in and with China. The impacts of the ECFA are described in terms of real GDP, equivalent variation (EV) as a measure of welfare, export and import volumes, trade balance, terms of trade, and industry output. This study finds that the ECFA is expected to result in an increase in real GDP of mainland China and Taiwan, with Korea’s economic growth negatively affected. Its negative impact on Korea’s economic growth is caused mainly by trade diversion, which implies that Korea should make the utmost effort to conclude the China-Korea FTA as early as possible in order to compensate for the negative effects of the ECFA on the Korean economy.

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