Economic and Distributional Impacts of Free Trade Agreements : The Case of Indonesia
As preferential trade agreements are growing in number and depth, assessment of their economic impacts has become more important to inform policy-makers facing a multitude of potential preferential trade agreements. This paper provides novel ex ant...
| Main Authors: | , , , |
|---|---|
| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/926241569328187590/Economic-and-Distributional-Impacts-of-Free-Trade-Agreements-The-Case-of-Indonesia http://hdl.handle.net/10986/32450 |
| Summary: | As preferential trade agreements are
growing in number and depth, assessment of their economic
impacts has become more important to inform policy-makers
facing a multitude of potential preferential trade
agreements. This paper provides novel ex ante estimates of
the impacts of two key preferential trade agreements
currently negotiated by Indonesia, the largest economy in
Southeast Asia. The paper then compares these estimates with
those of other preferential trade agreements that Indonesia
may negotiate in the future. To that end it, combines a
dynamic, multi-country computable general equilibrium model
and a microsimulation tool linking the macroeconomic results
to household-level welfare. The results suggest that, among
the preferential trade agreements considered, the European
Union–Indonesia Comprehensive Economic Partnership Agreement
(EU-CEPA) is expected to yield the largest gains for
Indonesia in income, output, and exports. This result is due
to a combination of large expected reductions in trade
barriers and a high share of international trade between the
partners. These macro effects translate into the highest
expected income growth relative to the other preferential
trade agreements at every point of the income distribution.
However, the gains for the EU-CEPA are proportionately
larger for richer households, unlike the other agreements
considered. The regressive gains are mainly due to the
increase in skill wage premia spurred by the additional
demand for skill-intensive sectors, especially services. |
|---|