An Empirical Study:The Economic Effects Of China-ROK FTA On GDP Of China And South Korea

Since China and South Korea established formal diplomatic relations,the economic and trade cooperation has achieved rapid development between two countries.Trade dependence has been deepened,and trade forms have gradually developed into intra-industry trade.On this basis,the government of China and South Korea signed the China-ROK FTA on June 1,2005.The bilateral trade tariffs between China and South Korea will be significantly reduced,which opened a new chapter in Sino-ROK economic and trade cooperation and took an important step in the development of East Asian economic integration.At the same time,China is actively promoting "The Belt and Road" strategy,and the recent "Sade" incident is casting shadow on the economic and trade cooperation between China and South Korea.Under these circumstances,the economic effects of China-ROK FTA studied in this thesis will be of great importance:First,the effects will make Korea to recognize the importance of healthy economic and trade relationship with China;Second,the effects of Sino-Korea FTA will promote the economic integration in East Asian;Third,the Sino-Korea FTA will provide a good reference for B&R strategy.In this thesis,we study the effect of the Sino-Korea FTA on the GDP of both sides.First,the existing research tools and related theories were reviewed.Based on the analysis of the GTAP theoretical model,we found the defects of the existing research tools which were used to measure the economic effects of FTA:First,the GTAP model has many strong assumptions which makes it too difficult to meet the real economy;Second,the equilibrium solution of the GTAP model is not continuous which is inconvenient for the policy effect analysis.Therefore,this thesis opens an entirely new way to study the economic effects of FTA.In this thesis,we develop an econometric model based on the GTAP model to estimate the tariff elasticity of GDP,which draws on the advantages of GTAP model and makes up for its defects.In the empirical part of this thesis,we first built an econometric model to estimate the tariff elasticity of GDP for both China and Korea,the robust test showed that the model we built was reliable.Then we described the tariff reduction path between China and Korea according to the Sino-Korea FTA,and the import dependence between China and Korea was calculated,from which we derived the dynamic economic effects of Sino-Korea FTA on the overall tariff of two countries.Finally,with the results obtained above,we could calculate the dynamic effects of China-Korea FTA on GDP of both countries.The empirical results showed that:because of the China-ROK FTA,the GDP growth rate of China would averagely increase 0.25 percentage per year during the 20 years’ tariffs cutting transition period,while the GDP growth rate of Korea would also increase 0.63 percentage per year during the tariffs cutting transition period.And the economic effects would be greater when more tariffs were cut.According to the empirical results,we can conclude that:First,FTAs will have positive effects on the participants’ economy;Second,the economic effects of FTA depend on how much the tariffs are reduced and the bilateral trade dependence;Third,South Korea benefits a lot from the China-ROK FTA,so never should Korea damage the interests of China which would be bad for the healthy development of economic and trade cooperation between China and Korea.In view of the conclusion and China-ROK FTA,this thesis puts forward some policy suggestions from both national and enterprise levels:The Chinese government should set the China-Korea FTA as an example for "The Belt and Road" strategy,and actively participate in the construction of high-standard FTAs with a more open-minded attitude.At the same time,the government should take the China-ROK FTA as an opportunity to promote the upgrading of domestic industries with proper policy guidance;To cope with the shocks brought by the China-ROK FTA,enterprises should take the initiative to phase out backward production capacity,take more effort in R&D,improve the productive efficiency as much as possible and maintain enterprises’ core competitiveness.