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Selecting Promising FTA Partners & Analyzing the Economic Effects of FTAs on the Manufacturing Sector

Author Kim Soodong , Lee Sangkyu, Kim Bawoo, Park Kayoung Date 2016.12.28 Page
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This study analyzes potential and promising free trade agreement (FTA) partners for South Korea on the basis of similarity and compatibility of industrial structures. This study not only identifies and ranks the most promising FTA partners for Korea, but also provides a negotiating strategy. In addition, this study can serve Korean policymakers as they develop a blueprint for the two-stage FTA negotiation strategy by providing a quantitative analysis of the expected economic effects of FTAs with the chosen partner countries. 

 

There are mainly three important trends of change occurring in the global trade environment today. First is the rise of regionalism in the form of regional trade agreements. Second is the reorganization of world trade order through mega-FTAs, such as the Korea-China-Japan FTA, the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP), and the Free Trade Agreement of Asia-Pacific (FTAAP). Third is the rapid economic integration of the Asia-Pacific region and the consequent escalation of the rivalry between the United States and China.  

 

This study estimates the ex-post effects of increasing Korea’s exports under FTAs by applying the gravity model to the performance of the FTAs Korea has already entered. By taking into account other macroeconomic and geographic variables possibly at play, we sought to single out and determine the effect of FTAs alone on Korea’s exports. Our analysis reveals that these agreements have had a positive impact on increasing Korea’s exports over time. Even when diverse methods were used, positive effects emerged from FTAs on Korea’s exports in any given year, with these effects growing stronger over the years.  

 

The promising partners for FTAs with Korea are embracing new trade policies based upon thorough preparation and mid- and long-term plans in the face of rapid changes in the global trade environment. These countries are undertaking policy reforms with a view to revitalizing their economies in the long run. Seamlessly connected to diverse other economic and industrial policies, the trade policies of these countries carry significant implications for Korea.