• East Asian Economic Review
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• v.24 no.3
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• pp.207-235
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• 2020

Acknowledging that individuals dislike having low relative income renders trade less attractive when seen as a technology that integrates two economies by merging separate social spheres into one. We define a "trembling trade" as a situation in which gains from trade are less than losses in relative income, with the result that global social welfare is reduced. We show that a "trembling trade" can arise even when trade is more gainful in four ways: through trade the absolute income of everyone increases, the income gap in both economies is reduced, as is the income gap between the trading economies. However, trade brings populations, economies, or markets that were not previously connected closer together in social space. As a consequence, separate social spheres merge, and people's social space and their comparators are altered. Assuming that people like high (absolute) income and dislike low relative income, the aggregate increase in unhappiness caused by the trade-induced escalation in relative deprivation can result in a negative overall impact of trade on (utilitarian-measured) social welfare, if the absolute income gains are not large enough to mitigate the relative income losses.

• Journal of Korea Trade
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• v.26 no.7
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• pp.1-18
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• 2022

Purpose - Recent international studies have largely focused on measuring the welfare gains from increased trade varieties. To adequately capture the variety gains, it is of importance to estimate the elasticity of substitution between varieties of trade goods because it is one of the key parameters to determine the magnitude of the variety gains. Using the import data of South Korea, this paper shows that the elasticities vary substantially across the estimators, which affects the magnitude of the gains from trade. Design/methodology - Empirical studies working on the gains from trade variety have heavily depended on the estimation methods for the elasticity of substitution between trade varieties, developed by Feenstra (1994) and refined by Broda and Weinstein (2006). We estimate and compare the estimated elasticities for 8,945 HS 10 goods of South Korea, obtained from the three estimation methods: Feenstra's weighted least square (F-WLS), Feenstra's feasible generalized least square (F-FGLS), and Broda and Weinstein's feasible generalized least square (BW-FGLS). Findings - Using the estimated elasticities from the F-FGLS, considered as a suitable estimator, A typical Korean consumer saved 228 dollars per year by the greater access to new import varieties. This leads to gains from imported variety of 2.06% of GDP. In 2017, a typical Korean consumer would gain by 611 dollars, compared with 2000. China is the country with the largest contribution (28.4%), followed by Japan and USA. About 50% of all the welfare gains come from the imports from the three main trade partners. The Southern Asian countries are more important to the South Korean welfare gain than the Western European countries. Originality/value - Existing studies have chosen one of the methods without any criterion for the choice and then estimated the elasticities of substitution between varieties of trade goods. This paper focuses on the estimation specifications and methods as the cause of the disparity in estimated elasticities and welfare gains from trade variety. According to the Ramsey RESET and White tests, the F-FGLS estimates are relatively better compared to the F-WLS and BW-FGLS estimates. As another contribution, this paper provides the first measure of the welfare gains from trade variety for South Korea, using the estimated elasticities of substitution between trade varieties.

• East Asian Economic Review
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• v.23 no.1
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• pp.27-53
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• 2019

I employ search-and-matching to a multi-country and multi-sector Ricardian model with input-output linkages, trade in intermediate goods, and sectoral heterogeneity, in order to quantify the welfare effects from tariff changes. The paper shows that labor market frictions can be a source of comparative advantage in the sense that better labor market conditions contribute to lower cost in production. Labor market frictions play a critical role in determining the probability of exporting goods to trading partners, and interact with bilateral trade share, price, expenditures, etc. Unemployment and changes in unemployment rates due to tariff reductions contribute welfare changes across countries, implying that welfare effects based on quantitative trade models with full-employment are likely to be biased. I confirm the biased welfare effects by revisiting Caliendo and Parro (2015), who conduct an analysis of the welfare effects from the NAFTA from 1993 to 2005. I show that the welfare gap between theirs and mine has a positive correlation with changes in observed unemployment rates across countries. With the constructed model, I further conduct counterfactual exercises by asking what would happen if China's tariffs remain unchanged from 2006 to 2015. It turns out that there are mild welfare effects to trading partners in the world trading system.

• East Asian Economic Review
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• v.22 no.3
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• pp.275-306
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• 2018

Amid a general rise in protectionism and a trade war between the world's two largest economies, this paper analyzes changes in gains from trade for the world over a decade marked by rapid global economic integration preceding the global financial crisis of 2007-08. It employs state-of-the-art quantitative trade models based on the gravity equation to estimate autarky gains from trade, as well as a recently introduced ANOVA-type structural estimation of the gravity equation to obtain trade costs free of residual trade cost bias. Between 1995 and 2006, the cost of moving to autarky increased by about 45% on average. A decomposition exercise suggests most of the increase in autarky gains from trade on average was due to increases in import shares in total spending, with a limited role for reallocations of spending across sectors with varied trade elasticities. Changes in trade costs between 1995 and 2006 are found to have increased autarky gains from trade, as measured in 2006, by up to 100%.

• Asia-Pacific Journal of Business Venturing and Entrepreneurship
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• v.12 no.6
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• pp.41-47
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• 2017

This study is an empirical analysis of the welfare of small and medium venture company trade. In the past, although the study analyzes the trade welfare for representative firm, this research is focusing on the distribution of an entire industry of companies analyzed. In this study, medium-to venture enterprise-scale for logarithmic normal distribution and Pareto distribution is estimated, and this study investigates the trading welfare changes. Results of the analysis can be summarized as follows. First of all, greater trade benefits enterprise-scale heterogeneity appeared to be significant. The result of this finding appeared to be the same to large firms as well as small and medium ventures. Trading welfare, assuming the distribution of Pareto rather than logarithmic normal distribution it's supposed to be overwhelmingly large. Secondly, the case of large corporations shows the more trade welfare than that of small and medium venture companies. Third, assuming homogeneous distribution of enterprise-scale trade welfare differences did not exist. Finally, from the point of view of increasing the welfare of trade, the diversity aiming of venture business is a very important role in the long term, because of the small and medium-sized ventures trade role.

• Journal of Korea Trade
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• v.23 no.3
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• pp.118-137
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• 2019

Purpose - As global trade disputes intensify and global trade uncertainty increases due to the prevailing trade protectionism all over the world, mega-FTAs such as the RCEP and CPTPP are suggested as strategic trade policy options for export-driven small open economies, such as Korea. This paper aims to provide a comprehensive analysis of Korea's mega-FTA participation and the induced implications for the Korean economy. Design/methodology - We use a multi-region, multi-sector global CGE model, and investigate the different effects of both the US-China and US-EU trade wars on the relative changes in GDP, welfare, and trade under different trade policy regimes; (i) Korea does not participate in any mega-FTA, (ii) Korea participates in the RCEP, and (iii) Korea participates in the CPTPP. Findings - We show, among others, that though industrial effects might be largely varied, the overall enlarging of free trade zones through multilateral mega-FTA participation may contribute significantly to the macroeconomic soundness and stability of Korea, even when global trade protectionism prevails. Under RCEP and CPTPP trade regimes, Korea's GDP may increase even when the global trade environment deteriorates as trade wars occur and intensify between the US and China, or between the US and EU. It is also estimated that RCEP participation increases Korea's GDP, welfare (measured in equivalent variation), and total trade by 1.12%, $1.09 billion, and 2.54%, respectively, while CPTPP participation increases them by 0.19%, $0.92 billion, and 0.13%, respectively. Originality/value - Existing studies usually focus on the direct impacts of mega-FTA participation on macroeconomic variables such as GDP, welfare, and trade, and do not consider the possible buffer effects of a mega-FTA when the global trade environment worsens. In this paper, we analyze and quantify not only the direct impacts of RCEP and CPTPP on the main macroeconomic variables but also the possible buffer effects of the RCEP and CPTPP in the cases of the US-China and US-EU trade wars.

• The Journal of Fisheries Business Administration
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• v.43 no.2
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• pp.1-14
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• 2012

The main purpose of this study is to analyze the effect of Korea-China free trade agreement(FTA) on Korea's fisheries trade using the partial equilibrium analysis model of Feenstra(1995). The study tries to show the impact on trade flows and welfare of the elimination of tariffs Korea-China FTA on Korea's fisheries sector among several scenarios of trade liberalization. The results of the study indicate that the increase of fisheries export to China is lower than that of fisheries import from China. Therefore Korea-China FTA results in the decrease of domestic of fisheries production even though total welfare effect is positive. The study suggest several policy proposals for soft-landing of Korea-China FTA on Korea's fisheries sector. One of them is to lengthen the term of tariff elimination to minimize the impact on domestic fisheries sectors.

• Korea Trade Review
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• v.44 no.3
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• pp.1-14
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• 2019

We compared and analyzed the effects of establishing multilateral FTA and bilateral FTA on the R&D investment of exporting firms when they compete in Cournot fashion and when the government of the importing country acts strategically. In the short run, we found that the importing country prefers to enter into a bilateral FTA with each exporting country separately for maximizing its welfare. However, we also found that, in the long run, it is more welfare-enhancing policy for importing country that entering into a multilateral FTA with all of the exporting countries simultaneously because it helps facilitate the R&D investment of exporting firms. But once entering into a multilateral FTA, the exporting firms would be faced with more intensive R&D investment competition and hence they would suffer severe welfare loss.

• Journal of Korea Trade
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• v.23 no.3
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• pp.84-104
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• 2019

Purpose - This paper explains why free trade agreements (FTAs) are more popular than customs unions (CUs) in respect of tariff coordination. Design/methodology - This paper employs an equilibrium theory of trade agreements with tariff coordination. I set up three-country partial equilibrium model with competing exporters. Domestic and exporting firms decide their optimal production under given tariffs and each country levies its tariff under the trade agreements. I found stability of implicit tariff coordination and preference of each country between an FTA and a CU. Findings - I demonstrate that two FTA members can keep their external tariffs higher than separately decided external tariffs by keeping the status-quo. This implicit tariff coordination can benefit each member through trade diversion. In a CU, each member country must have a common optimal external tariff and it must incur costs because each country may seek different external tariffs for their own national welfare. The benefit of implicit coordination in an FTA and the cost of explicit coordination in a CU account for the popularity of the FTA. Originality/value - This paper uses the idea of implicit tariff coordination in trade agreements. In a CU, tariff coordination is explicit and mandatory. All member countries must have a single common external tariff for each good. On the other hand, in an FTA, each country establishes its external tariff with the goal of maximizing its own welfare. However, each country can also coordinate "implicitly" by keeping the status-quo after establishing an FTA.

• Korea Trade Review
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• v.45 no.4
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• pp.1-24
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• 2020

This study aims to analyze the export effects of Korea-Canada FTA's tariff reduction, which was launched on January 1, 2015. First, as a groundwork, this study reviewed trade creation and trade diversion by investigating all possible cases of both initial FTA and additional FTA. The review was done by using the simple model of three countries assuming FTA means elimination of tariff. The review suggested that additional FTA doesn't have any negative impact on import country's social welfare contrary to initial FTA. In additional FTA, Trade diversion could happen between FTA partner countries, but it always increases import country's social welfare. In this sense, it can be called favorable trade diversion. Second, this study analyzed the export effects of Korea-Canada FTA using Clausing's product level model based on Canadian government import data from Korea which is not open to the public. It turned out that Korea-Canada FTA's tariff reduction boosted Canadian import growth rate from Korea. On the other hand, Canadian import growth rate from rest of the world was not negatively affected by Korea-Canada FTA's tariff reduction. Rather, it increased as Canadian import growth rate from Korea was higher. These findings implied trade creation rather than trade diversion of Korea-Canada FTA when it comes to Korea's export to Canada.