The Impact of East Asian Economic Integration on Taiwan

The Impact of East Asian Economic Integration on Taiwan

This paper examines the anticipated impacts on Taiwan of various alternative East Asian free trade agreements (FTAs). Using a multi-region and multi-sector computable general equilibrium model, it shows that the formation of East Asian FTAs that exclude Taiwan would be somewhat disadvantageous to Taiwan’s economy, particularly FTAs in which China is a member. By contrast, Taiwan will benefit economically from East Asian FTAs that include Taiwan as a member. Of the FTAs considered in this paper, Taiwan would benefit most from an FTA including all the East Asian economies (ASEAN + 5). Although Taiwan would also gain considerably from a Taiwan-USA FTA, the benefits obtainable from such an arrangement are much smaller than those from an ASEAN+5 or a Taiwan-China-Hong Kong FTA. These results indicate that the China factor is a very important consideration in Taiwan’s FTA policy.