Journal of Korea Trade

Korea Trade Research Association (한국무역학회)
권호 표지
DOI QR코드

DOI QR Code

Global Productivity and Market Structure Implications of the US-China Trade War: A CGE Modeling Approach

  • Jung, Jaewon (Department of International Trade, Dankook University)
  • Received : 2020.09.09
  • Accepted : 2020.12.17
  • Published : 2020.12.31
Download PDF
⟨ Previous Next ⟩

Abstract

Purpose - As the US-China trade war intensifies and lasts long time, there is growing concern about its potential effects on the global economy. In particular, for the countries like Korea that have a large economic dependence on the economy of the two countries, the US-China trade war may have a great repercussion in many ways. The aim of this paper is to investigate the global productivity and market structure implications of the US-China trade war for Korea, as well as for other surrounding countries and regions. Design/methodology - In this paper, we develop a full multi-country/region multi-sector computable general equilibrium (CGE) model of global trade incorporating heterogeneous workers and firms in individual skill levels and used technologies. We then calibrate the model using a global Social Accounting Matrix (SAM) dataset extracted from the recently released GTAP 10 Database, and assess the potential effects of the US-China trade war on the aggregate real productivity and the market structure for Korea, as well as for other surrounding countries and regions. Findings - We show that the US-China trade war may largely affect the aggregate productivity in each sector in each country/region, as well as the global market structure through entry and exit of firms, which results finally in considerable changes in the industrial comparative advantage of each country/region. Though the effects are diverse sector by sector, the results show that Korea may also be affected significantly: concerning the real productivity implications, it is shown that the machinery industry may be affected the most negatively; on the other hand, it is shown that the number of exporting firms may decrease the most in the other transports industry. Originality/value - As the US-China trade war intensifies, many studies have tried to estimate the possible implications, and for this usually the CGE models have largely been used as the standard tool for evaluating the impacts of changes in trade policies. Standard CGE models, however, cannot be used to assess the global productivity and market structure implications due to the symmetric and simplified base assumptions. This paper is the first to analyze and quantify the possible impacts of the US-China trade war on the aggregate productivity and global market structure using a CGE model incorporating endogenous skill-technology assignment of heterogeneous workers and firms.

Keywords

References

  1. Angkinand, A. P. and E. M.P. Chiu (2011), "Will Institutional Reform Enhance Bilateral Trade Flows? Analyses from Different Reform Aspects", Journal of Economic Policy Reform, 14(3), 243-258. https://doi.org/10.1080/17487870.2011.576485
  2. Antras, P., L. Garicano and E. Rossi-Hansberg (2006), "Offshoring in a Knowledge Economy", Quarterly Journal of Economics, 121, 31-77. https://doi.org/10.1093/qje/121.1.31
  3. Aw, B., S. Chung and M. Roberts (2000), "Productivity and Turnover in the Export Market: MicroLevel Evidence from the Republic of Korea and Taiwan (China)", World Bank Economic Review, 14, 65-90. https://doi.org/10.1093/wber/14.1.65
  4. Bernard, A. B. and J. B. Jensen (1999), "Exceptional Exporter Performance: Cause, Effect, or Both?", Journal of International Economics, 47, 1-25. https://doi.org/10.1016/S0022-1996(98)00027-0
  5. Bernard, A. B. and J. B. Jensen (2004), "Exporting and Productivity in the USA", Oxford Review of Economic Policy, 20(3), 343-357. https://doi.org/10.1093/oxrep/grh020
  6. Blanchard, E. and G. Willmann (2016), "Trade, Education, and the Shrinking Middle Class", Journal of International Economics, 99, 263-278. https://doi.org/10.1016/j.jinteco.2015.10.007
  7. Clerides, S., S. Lach and J. Tybout (1998), "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco", Quarterly Journal of Economics, 113, 903-947. https://doi.org/10.1162/003355398555784
  8. Costinot, A. and J. Vogel (2010), "Matching and Inequality in the World Economy", Journal of Political Economy, 118, 747-786. https://doi.org/10.1086/655858
  9. Girma, S., H. Gorg and E. Strobl (2004), "Exports, International Investment, and Plant Performance: Evidence form a Non-Parametric Test", Economic Letters, 83, 317-324. https://doi.org/10.1016/j.econlet.2003.10.024
  10. Grossman, G. M. and G. Maggi (2000), "Diversity and Trade", American Economic Review, 90, 1255-1275. https://doi.org/10.1257/aer.90.5.1255
  11. Grossman, G. M. (2004) "The Distribution of Talent and the Pattern and Consequences of International Trade", Journal of Political Economy, 112, 209-239. https://doi.org/10.1086/379935
  12. Helpman, E., M. J. Melitz and S. R. Yeaple (2004), "Export versus FDI with Heterogeneous Firms", American Economic Review, 94 300-316. https://doi.org/10.1257/000282804322970814
  13. Helpman, E., O. Itskhoki and S. Redding (2010), "Inequality and Unemployment in a Global Economy", Econometrica, 78, 1239-1283. https://doi.org/10.3982/ecta8640
  14. Itakura, K. (2020), "Evaluating the Impact of the US-China Trade War", Asian Economic Policy Review, 15, 77-93. https://doi.org/10.1111/aepr.12286
  15. Jung, Jae-Won (2017), "Openness, Productivity and Welfare with Heterogenous Firms", Journal of Korea Trade, 21(4), 349-365. https://doi.org/10.1108/JKT-06-2017-0063
  16. Jung, Jae-Won (2019), "Technology, Skill, and Growth in a Global Economy", Economic Theory, 68, 609-641. https://doi.org/10.1007/s00199-018-1136-6
  17. Jung, Jae-Won and Tae-Hwang Kim (2019), "Macroeconomic Buffer Effects of Mega-FTA Formation: A CGE Analysis for Korea", Journal of Korea Trade, 23(3), 118-137.
  18. Jung, Jae-Won (2020), "Introducing Roy-like Worker Assignment into Computable General Equilibrium Models", Applied Economics Letters, 27, 503-510. https://doi.org/10.1080/13504851.2019.1637510
  19. Li, M., E. J. Balistreri and W. Zhang (2020), "The US-China Trade War: Tariff Data and General Equilibrium Analysis", Journal of Asian Economics, 69, 1-13.
  20. Liu, T. and W. T. Woo (2018), "Understanding the U.S.-China Trade War", China Economic Journal, 11(3), 319-340. https://doi.org/10.1080/17538963.2018.1516256
  21. Mao, H. and H. Gorg (2019), "Friends Like This: The Impact of the US-China Trade War on Global Value Chains", World Economy, 43, 1776-1791. https://doi.org/10.1111/twec.12967
  22. Melitz, M. J. (2003), "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity", Econometrica, 71, 1695-1725. https://doi.org/10.1111/1468-0262.00467
  23. Syverson, C. (2004), "Market Structure and Productivity: A Concrete Example", Journal of Political Economy, 112(6), 1181-1222. https://doi.org/10.1086/424743
  24. Tung, R. L. (1982), "U.S.-China Trade Negotiations: Practices, Procedures and Outcomes", Journal of International Business Studies, 13(2), 25-37. https://doi.org/10.1057/palgrave.jibs.8490548
  25. Wei, S. J. (2000) "How Taxing is Corruption on International Investors?", Review of Economics and Statistics, 82(1), 1-11. https://doi.org/10.1162/003465300558533
  26. Yeaple, S. R. (2005), "A Simple Model of Firm Heterogeneity, International Trade, and Wages", Journal of International Economics, 65, 1-20. https://doi.org/10.1016/j.jinteco.2004.01.001