509. The Trade And Welfare Analysis Of The TPP

Juyoung Cheong, and Shino Takayama,  School of Economics Discussion Paper No. 509 February 2014, School of Economics, The University of Queensland.

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Abstract

This paper studies the effects of Trans-Pacific Partnership (TPP) on trade flows and welfare in a general equilibrium framework following the Eaton and Kortum (2002) model. Using comprehensive data including prices, wages, output, and bilateral trade in manufacturing for 38 countries including ASEAN and OECD members, we estimate each country’s various parameters (e.g. openness, competitiveness, state of technology) and conduct calibrations. Our calibration results indicate that the TPP does not always improve all member countries’ welfare, while outside countries may gain from positive externalities. It is found that accession to the TPP is not welfare-enhancing to Japan when labor is internally mobile between manufacturing and non-manufacturing, while Japan is better off from the TPP membership under labor immobility. It is also shown that the TPP benefits more countries, including both members and non-members, if Japan joins the TPP.