Exploring the welfare effects of RCEP—a quantitative analysis based on a structural model

Abstract

Based on Caliendo and Parro’s general equilibrium model, this study used the Regional Comprehensive Economic Partnership (RCEP) tariff reduction schedule to quantify the trade and welfare effects of the RCEP on its members at different points in time and calculated the welfare for the counterfactuals of India’s accession to the RCEP and tariff reductions in other parts of the world. Quantitative simulations showed that the RCEP brought welfare to most members, with South Korea receiving the greatest welfare, followed by Australia, Japan, New Zealand and the Association of Southeast Asian Nations as a whole, while China had the smallest improvement in trade and welfare effects. The RCEP mainly originated from the increase in the scale of trade, the terms of which tended to deteriorate. There were no significant welfare improvements for Singapore as a free trade port. Computers, electronic and optical products, and electrical equipment contributed most to the increase in the scale effect of China’s trade. In addition, this study found that the greater the tariff reductions among members, the stronger the welfare improvement effect, and that the welfare generated by the reduction of RCEP tariffs has an inverted “U” correlation with GDP. That is, when a country’s GDP falls below a certain threshold, there is a positive correlation between GDP and welfare. Beyond this threshold, there is a negative correlation between the two, which is consistent with trade theory, which states that large and small countries receive unequal benefits from opening up to trade.