The Effects of APEC Trade and Investment Liberalization on Structural and Employment Adjustments : A CGE Model Analysis

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This research provides numerical simulation analysis of the impact of APEC trade and investment liberalization on real GDP, structural and employment adjustments using a dynamic computable general equilibrium (CGE) model.Real GDP of developed and developing APEC members is predicted to increase by $42 billion and $83 billion, respectively, by the year 2020 from trade liberalization, compared with the baseline scenario where no trade liberalization is assumed during 2000-2020. In Japan, output and employment of labor-intensive sectors such as agriculture and processed food would contract, whereas those of capital-intensive sectors such as machinery, transportation equipment, and metals and products would expand. In ASEAN countries, output and employment of not only labor-intensive sectors but also some advanced sectors such as machinery are predicted to expand.The simulation results from the model that incorporates foreign direct investment (FDI) suggest that FDI liberalization would bring about greater benefits than trade liberalization to all the APEC economies with the exception of Japan. In the manufacturing sector, trade and FDI are found to be complements in the APEC regions. In other words, trade liberalization leads to an increase in the inward and outward FDI stocks, and FDI liberalization leads to an increase in trade flows of manufactures.