Ko Does Regional and Sectoral Aggregation Matter 13June2013became effective in November 2011 is used as an example. ... 13 NZL 13 PER 13 BR 13 AFS 13 ESP 13 ESP 13 ESP 13 ESP 14 CAN

Does Regional and Sectoral Aggregation Matter? Sensitivity Analysis in the Context of EU-Korea FTA

Jong-Hwan Ko1 and Wolfgang Britz2

1Division of International and Area Studies, Pukyong National University, Korea

[email protected] for Food and Resource Economics, University of Bonn, Germany

[email protected]

16th Annual Conference on Global Economic Analysis"New Challenges for Global Trade in a Rapidly Changing World"

Shanghai, China, June 12-14, 2013

Contents Introduction Literature review Sensitivity analysis with an Armington

model Scenarios Comparison of simulation results of

EU-Korea FTA using GTAP model and CAPRI model

Conclusions

Introduction CGE models vs. PE models for impact analysis of

trade policy CGE models have been criticized because they miss

much of policy detail and face serious aggregation issues.

PE models are more disaggregated but lack internal consistency and have nothing to say about the economy-wide effects from trade reform.

Introduction Aggregation level is usually determined before

running the models. Ample evidence that sectoral aggregation matters

in trade analysis. Limited evidence about how regional aggregation

level affects the results of CGE and PE applications.

The objective of this study is to analyze how sectoral and regional aggregation level affects the results of CGE and PE models.

Introduction The FTA between EU and South Korea which

became effective in November 2011 is used as an example.

GTAP model with capital accumulation (Baldwin, 1992; Francois) and CAPRI (Common Agricultural Policy Regionalised Impact) model (Britz and Witzke, 2012) are used.

Literature review Grant, Hertel and Rutherford (2006), “Extending

General Equilibrium to the Tariff Line: U.S. Dairy in the Doha Development Agenda”

Lenzen (2011), “Aggregation versus Disaggregation in Input-Output Analysis of the Environment”

Zhang (2013), “Sectoral aggregation bias in the accounting of emissions embodied in trade and consumption”

Sensitivity analysis with an Armington model

GTAP and CAPRI Models

GTAP model with capital accumulation (Baldwin, 1992; Francois)

CAPRI model (Britz and Witzke, 2012)

CAPRI Model

Sectors in GTAP model1pdr Paddy rice 14fsh Fishing

2wht Wheat 15cmt Meat: cattle,sheep,goats,horse

3gro Cereal grains nec 16omt Meat products nec

4v_f Vegetables, fruit, nuts 17vol Vegetable oils and fats5osd Oil seeds 18mil Dairy products6c_b Sugar cane, sugar beet 19pcr Processed rice7pfb Plant-based fibers 20sgr Sugar8ocr Crops nec 21ofd Food products nec

9ctl Cattle,sheep,goats,horses 22b_t Beverages and tobacco products

10oap Animal products nec 23Mining Mining11rmk Raw milk 24MNF Manufacturing sectors12wol Wool, silk-worm cocoons 25SRV Services13frs Forestry

Source: GTAP DB 8.1 (February 2013)

Regions in GTAP

model

1) EU1 2) EU7 3) EU12 4) EU14 5) EU15 6) EU17 7) EU26 8) EU271 KOR 1 KOR 1 KOR 1 KOR 1 KOR 1 KOR 1 KOR 1 KOR2 EU27 2 EC6 2 BEL 2 BEL 2 BEL 2 BEL 2 BEL 2 BEL3 CHL 3 DIU 3 FRA 3 FRA 3 FRA 3 FRA 3 FRA 3 FRA4 EFTA 4 G 4 DEU 4 DEU 4 DEU 4 DEU 4 DEU 4 DEU5 ASEAN 5 EP 5 ITA 5 ITA 5 ITA 5 ITA 5 ITA 5 ITA6 IND 6 AFS 6 LUX 6 LUX 6 LUX 6 LUX 6 LUX 6 LUX7 PER 7 CEEC10 7 NLD 7 NLD 7 NLD 7 NLD 7 NLD 7 NLD8 USA 8 BR 8 DIU 8 DNK 8 DNK 8 DNK 8 DNK 8 DNK9 TUR 9 CHL 9 G 9 IRL 9 IRL 9 IRL 9 IRL 9 IRL10 CHN 10 EFTA 10 EP 10 GBR 10 GBR 10 GBR 10 GBR 10 GBR11 JPN 11 ASEAN 11 AFS 11 G 11 G 11 G 11 G 11 G

12 AUS 12 IND 12 CEEC10 12 EP 12 PRT 12 PRT 12 PRT 12 PRT

13 NZL 13 PER 13 BR 13 AFS 13 ESP 13 ESP 13 ESP 13 ESP

14 CAN 14 USA 14 CHL 14 CEEC10 14 AFS 14 AUT 14 AUT 14 AUT

15 COL 15 TUR 15 EFTA 15 BR 15 CEEC10 15 FIN 15 FIN 15 FIN

16 GCC 16 CHN 16 ASEAN 16 CHL 16 BR 16 SWE 16 SWE 16 SWE

17 MEX 17 JPN 17 IND 17 EFTA 17 CHL 17 CEEC10 17 CYP 17 CYP

18 ROW 18 AUS 18 PER 18 ASEAN 18 EFTA 18 BR 18 CZE 18 CZE19 NZL 19 USA 19 IND 19 ASEAN 19 CHL 19 EST 19 EST20 CAN 20 TUR 20 PER 20 IND 20 EFTA 20 HUN 20 HUN21 COL 21 CHN 21 USA 21 PER 21 ASEAN 21 LVA 21 LVA22 GCC 22 JPN 22 TUR 22 USA 22 IND 22 LTU 22 LTU23 MEX 23 AUS 23 CHN 23 TUR 23 PER 23 MLT 23 MLT24 ROW 24 NZL 24 JPN 24 CHN 24 USA 24 POL 24 POL

25 CAN 25 AUS 25 JPN 25 TUR 25 SVK 25 SVK26 COL 26 NZL 26 AUS 26 CHN 26 SVN 26 SVN27 GCC 27 CAN 27 NZL 27 JPN 27 BR 27 BGR28 MEX 28 COL 28 CAN 28 AUS 28 CHL 28 ROU29 ROW 29 GCC 29 COL 29 NZL 29 EFTA 29 CHL

30 MEX 30 GCC 30 CAN 30 ASEAN 30 EFTA31 ROW 31 MEX 31 COL 31 IND 31 ASEAN

32 ROW 32 GCC 32 PER 32 IND33 MEX 33 USA 33 PER34 ROW 34 TUR 34 USA

35 CHN 35 TUR36 JPN 36 CHN37 AUS 37 JPN38 NZL 38 AUS39 CAN 39 NZL40 COL 40 CAN41 GCC 41 COL42 MEX 42 GCC43 ROW 43 MEX

44 ROW

8 Scenarios

1) EU1 2) EU7 3) EU12 4) EU14 5) EU15 6) EU17 7) EU26 8) EU271 KOR 1 KOR 1 KOR 1 KOR 1 KOR 1 KOR 1 KOR 1 KOR2 EU27 2 EC6 2 BEL 2 BEL 2 BEL 2 BEL 2 BEL 2 BEL3 CHL 3 DIU 3 FRA 3 FRA 3 FRA 3 FRA 3 FRA 3 FRA4 EFTA 4 G 4 DEU 4 DEU 4 DEU 4 DEU 4 DEU 4 DEU5 ASEAN 5 EP 5 ITA 5 ITA 5 ITA 5 ITA 5 ITA 5 ITA6 IND 6 AFS 6 LUX 6 LUX 6 LUX 6 LUX 6 LUX 6 LUX7 PER 7 CEEC10 7 NLD 7 NLD 7 NLD 7 NLD 7 NLD 7 NLD8 USA 8 BR 8 DIU 8 DNK 8 DNK 8 DNK 8 DNK 8 DNK9 TUR 9 CHL 9 G 9 IRL 9 IRL 9 IRL 9 IRL 9 IRL10 CHN 10 EFTA 10 EP 10 GBR 10 GBR 10 GBR 10 GBR 10 GBR11 JPN 11 ASEAN 11 AFS 11 G 11 G 11 G 11 G 11 G

12 AUS 12 IND 12 CEEC10 12 EP 12 PRT 12 PRT 12 PRT 12 PRT

13 NZL 13 PER 13 BR 13 AFS 13 ESP 13 ESP 13 ESP 13 ESP

14 CAN 14 USA 14 CHL 14 CEEC10 14 AFS 14 AUT 14 AUT 14 AUT

15 COL 15 TUR 15 EFTA 15 BR 15 CEEC10 15 FIN 15 FIN 15 FIN

16 GCC 16 CHN 16 ASEAN 16 CHL 16 BR 16 SWE 16 SWE 16 SWE

17 MEX 17 JPN 17 IND 17 EFTA 17 CHL 17 CEEC10 17 CYP 17 CYP

18 ROW 18 AUS 18 PER 18 ASEAN 18 EFTA 18 BR 18 CZE 18 CZE19 NZL 19 USA 19 IND 19 ASEAN 19 CHL 19 EST 19 EST20 CAN 20 TUR 20 PER 20 IND 20 EFTA 20 HUN 20 HUN21 COL 21 CHN 21 USA 21 PER 21 ASEAN 21 LVA 21 LVA22 GCC 22 JPN 22 TUR 22 USA 22 IND 22 LTU 22 LTU23 MEX 23 AUS 23 CHN 23 TUR 23 PER 23 MLT 23 MLT24 ROW 24 NZL 24 JPN 24 CHN 24 USA 24 POL 24 POL

25 CAN 25 AUS 25 JPN 25 TUR 25 SVK 25 SVK26 COL 26 NZL 26 AUS 26 CHN 26 SVN 26 SVN27 GCC 27 CAN 27 NZL 27 JPN 27 BR 27 BGR28 MEX 28 COL 28 CAN 28 AUS 28 CHL 28 ROU29 ROW 29 GCC 29 COL 29 NZL 29 EFTA 29 CHL

30 MEX 30 GCC 30 CAN 30 ASEAN 30 EFTA31 ROW 31 MEX 31 COL 31 IND 31 ASEAN

32 ROW 32 GCC 32 PER 32 IND33 MEX 33 USA 33 PER34 ROW 34 TUR 34 USA

35 CHN 35 TUR36 JPN 36 CHN37 AUS 37 JPN38 NZL 38 AUS39 CAN 39 NZL40 COL 40 CAN41 GCC 41 COL42 MEX 42 GCC43 ROW 43 MEX

44 ROW

FTAs of KoreaFTAs in effect Concluded FTAs Under negotiation Under consideration

K-Chile FTA: 1 Apr. 2004K-Singapore FTA: 2 Mar. 2006K-EFTA FTA: 1 Sep. 2006K-ASEAN FTA:Ag. in goods: 1 Jun. 2007Ag. in services: 1 Jun. 2009Ag. in investment: 1 Sep. 2009

K-India CEPA: 1 Jan. 2010K-EU FTA: 1 July 2011K-Peru FTA: 1 Aug. 2011K-U.S. FTA: 15 Mar. 2012K-Turkey FTA: 1 May 2013

K-Colombia FTA:31 Aug. 2012(signed)

K-Canada FTAK-Mexico FTAK-GCC FTAK-Australia FTAK-New Zealand FTAK-China FTA

K-Japan FTAK-C-J FTAK-MERCOSUR FTAK-Russia FTAK-Israel FTAK-SACU FTAK-Vietnam FTAK-Mongolia FTAK-Indonesia FTAK-Malaysia FTAK-Central America FTA

GCC: Gulf Cooperation Council or Cooperation Council for the Arab States of the Gulf consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates

MERCOSUR: Mercado Común del Sur (Southern Common Market) consisting of Argentina, Brazil, Paraguay and Uruguay (Bolivia, Chile, Ecuador and Peru: associate members)

SACU: South African Customs Union consisting of South Africa, Botswana, Lesotho, Swaziland and Namibia

Central America: Panama, Costa Rica, Guatemala, Honduras, Dominica and El Salvador

Scenarios using GTAP model Baseline scenarios:

9 FTAs of Korea which are effective were considered. FTAs of the EU, not considered

8 Policy scenarios: 100% cut of tariffs on 22 imported commodities except for rice of Korea (paddy and processed)

Comparison of simulation results of EU-Korea FTA using GTAP

model and CAPRI model

Simulation results using GTAP model

Impact on Real GDP of Korea(% change)

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

EU1 EU7 EU12 EU14 EU15 EU17 EU26 EU27

Real GDP of Korea

Impact on Real GDP of Korea(% change)

real GDP of KoreaEU1 0.2464EU7 0.2583EU12 0.3521EU14 0.3532EU15 0.3533EU17 0.3548EU26 0.3558EU27 0.3559

Impact on Welfare of Korea(US$ million)

‐

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Welfare of Korea

Impact on Welfare of Korea(US$ million)

Welfare of Korea

EU1 2,655 EU7 2,769 EU12 3,636 EU14 3,644 EU15 3,645 EU17 3,660 EU26 3,667 EU27 3,668

Impact on Total Imports of Korea(% change)

3.210

3.220

3.230

3.240

3.250

3.260

3.270

3.280

3.290

3.300

3.310


Import volume of Korea

Impact on Total Exports of Korea(% change)

2.860

2.880

2.900

2.920

2.940

2.960

2.980

3.000


Export volume of Korea

Impact on Industry Output of Korea(% change)

‐6.00

‐5.00

‐4.00

‐3.00

‐2.00

‐1.00

0.00

1.00

2.00

3.00 Impact on Korea's industry output

EU1 EU27

Impact on Import Volume by Sector of Korea (% change)

‐10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00 Impact on Korea's import volume

EU1 EU27

Impact on Export Volume by Sector of Korea (% change)

‐10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00 Impact on Korea's export volume

EU1 EU27

Impact on Real GDP of Germany(% change)

0.1764

0.1764

0.1765

0.1765

0.1766

0.1766

0.1767

0.1767

0.1768

0.1768

0.1769

EU12 EU14 EU15 EU17 EU26 EU27

Real GDP of Germany

Impact on Welfare of Germany(US$ million)

1,200.0

1,201.0

1,202.0

1,203.0

1,204.0

1,205.0

1,206.0


Welfare of Germany

Impact on Total Imports of Germany(% change)

0.2521

0.2522

0.2523

0.2524

0.2525

0.2526

0.2527

0.2528

0.2529

0.2530


Import volume of Germany

Impact on Total Exports of Germany(% change)

0.1764

0.1764

0.1765

0.1765

0.1766

0.1766

0.1767

0.1767

0.1768

0.1768

0.1769


Export volume of Germany

Impact on Industry Output of Germany(% change)

‐8.00

‐6.00

‐4.00

‐2.00

0.00

2.00

4.00 Germany's industry output

EU12 EU27

Impact on Import Volume by Sector of Germany (% change)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80 Germany's import volume

EU12 EU27

Impact on Export Volume by Sector of Germany (% change)

‐15.00

‐10.00

‐5.00

0.00

5.00

10.00

15.00 Germany's export volume

EU12 EU27

Impact on Real GDP of China(% change)

‐0.0080

‐0.0070

‐0.0060

‐0.0050

‐0.0040

‐0.0030

‐0.0020

‐0.0010

0.0000EU1 EU7 EU12 EU14 EU15 EU17 EU26 EU27

Real GDP of China

Impact on Welfare of China(US$ million)

‐480.0

‐470.0

‐460.0

‐450.0

‐440.0

‐430.0

‐420.0

‐410.0

‐400.0

‐390.0

‐380.0

‐370.0EU1 EU7 EU12 EU14 EU15 EU17 EU26 EU27

Welfare of China

Impact on Total Imports of China(% change)

‐0.0820

‐0.0815

‐0.0810

‐0.0805

‐0.0800


Import volume of China

Impact on Total Exports of China(% change)

‐0.0496

‐0.0494

‐0.0492

‐0.0490

‐0.0488

‐0.0486

‐0.0484

‐0.0482

‐0.0480

‐0.0478


Export volume of China

Impact on Industry Output of China(% change)

‐0.4

‐0.35

‐0.3

‐0.25

‐0.2

‐0.15

‐0.1

‐0.05

0

0.05

0.1 Impact on China's industry output

EU1 EU27

Impact on Import Volume by Sector of China (% change)

‐0.35

‐0.30

‐0.25

‐0.20

‐0.15

‐0.10

‐0.05

0.00

Impact on China's import volume

EU1 EU27

Impact on Export Volume by Sector of China (% change)

‐4.00

‐3.50

‐3.00

‐2.50

‐2.00

‐1.50

‐1.00

‐0.50

0.00

0.50

1.00 Impact on China's export volume

EU1 EU27

Conclusions Regional disaggregation matters to Korea. Korea’s sectoral impacts of regional

disaggregation can be larger, depending protection level.

Therefore, regional disaggregation of “EU27”, not one region as a whole, should be used for impact analysis of the EU-Korea FTA.

Conclusions Impacts of regional aggregation on Germany are

negligibly small. Effects of the EU-Korea FTA on all member states of

the EU are negligibly small. Its sectoral effects can be “not” negligibly small,

depending on protection level. Impacts of regional aggregation on China are

relatively small, but China’s sectoral impacts are larger than those on Germany’s sectoral ones. Effects of the EU-Korea FTA on all non-members of

the EU are relatively small. Its sectoral effects can be “not” relatively small,

depending on protection level.

Conclusions

Many things should be done to achieve the objectives of this study. Results of EU-Korea FTA using CAPRI model Comparison of results between GTAP model and

CAPRI model

Thank you for your attention!

Documents

Ko Does Regional and Sectoral Aggregation Matter 13June2013became effective in November 2011 is used as an example. ... 13 NZL 13 PER 13 BR 13 AFS 13 ESP 13 ESP 13 ESP 13 ESP 14 CAN