MEASURING THE IMPACT OF AFTA - AN APPLICATION OF A LINKED CGE SYSTEM

This research attempts to measure the macroeconomic effects of AFTA with a linked CGE system. The linked CGE system has been developed to quantify the macroeconomic effects of external shock, domestic policy, and regional-grouping and market-opening efforts through tariff reduction policies among ASEAN countries. Empirical findings indicate that ASEAN would be better off from AFTA, and the trade volume within ASEAN would be magnified. Furthermore, if the cooperative market opening toward the other region is combined with AFTA, the positive effect will be increased remarkably. However, ASEAN must consider the cost of trade liberalization, that is, the additional burden on the government budget and trade accounts and the resulting inflation. In addition to the empirical evaluation of the impact, the focus of this research is on model development in the field of CGE modeling in order to represent the macroeconomic disequilibrium features in developing countries and the dynamic properties of the model.