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What Would Korea-US Free Trade Agreement Bring?

Author

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  • Ozlem Yaylaci
  • Serge Shikher

Abstract

This paper uses a computable model of trade to forecast the effects of the US--Korea free trade agreement on the manufacturing sector. The model uses the Eaton--Kortum methodology to explain intra-industry trade instead of the usual Armington assumption. It is parameterized using 2005 data for 15 industries and 53 countries. The results show that implementing KORUS would increase the US manufacturing exports to Korea by 56.9% and Korean manufacturing exports to the US by 18.9%. It would also increase manufacturing employment by 26,500 jobs in Korea and 34,200 jobs in the US. In addition, KORUS would lead to significant changes in the patterns of trade and production. The US and Korea would increase their specialization in the industries where they have strong technological comparative advantages. Finally, KORUS would increase welfare in both countries, but only modestly: by 0.27% in Korea and 0.013% in the US.

Suggested Citation

  • Ozlem Yaylaci & Serge Shikher, 2014. "What Would Korea-US Free Trade Agreement Bring?," International Economic Journal, Taylor & Francis Journals, vol. 28(1), pages 161-182, March.
    • Handle: RePEc:taf:intecj:v:28:y:2014:i:1:p:161-182
    DOI: 10.1080/10168737.2013.787108
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    References listed on IDEAS

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    1. Inbom Choi & Jeffrey J. Schott, 2001. "Free Trade Between Korea and the United States?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa62, April.
    2. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
    3. Serge Shikher, 2012. "Putting industries into the Eaton--Kortum model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(6), pages 807-837, November.
    4. Kozo Kiyota & Robert M. Stern, 2007. "Economic Effects of a Korea-U.S. Free Trade Agreement," Working Papers 557, Research Seminar in International Economics, University of Michigan.
    5. Jeffrey J. Schott & Scott C. Bradford & Thomas Moll, 2006. "Negotiating the Korea-United States Free Trade Agreement," Policy Briefs PB06-4, Peterson Institute for International Economics.
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    Cited by:

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    2. Kehoe, Timothy J. & Rossbach, Jack & Ruhl, Kim J., 2015. "Using the new products margin to predict the industry-level impact of trade reform," Journal of International Economics, Elsevier, vol. 96(2), pages 289-297.

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