A Computable General Equilibrium Analysis on the Cross-Strait Services Trade Liberalization: The Significance of Unemployment and FDI

• Main Authors: Hsieh, Cheng-Ping, 謝承評
• Other Authors: Lee, Tsung-Chen
• Format: Others
• Language: en_US
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/56ht7z

碩士 === 國立臺北大學 === 經濟學系 === 102 === The Cross-Strait Agreement on Trade in Services, which was signed in 2013, is a follow-up agreement for the Economic Cooperation Framework Agreement (ECFA). However, this agreement does not come into effective until now because of political controversies and public concerns. This paper aims at conducting an empirical analysis on the economic impacts of the cross-strait service trade liberalization with a special focus on different modes of services supply and unemployment. Theoretically, there are four modes of services supply, consisting of cross-border trade (mode 1), consumption abroad (mode 2), commercial presence (mode 3), and movement of natural person (mode 4). Mode 1 means that a person in his country receives services from other countries through its telecommunications or postal infrastructure. Mode 2 means a person moves abroad to consume the foreign services. Mode 3 means a local or foreign company sets up an office or a branch in one country and provides service there. Mode 4 means a foreign person provides a service in one country as an independent supplier. At present, most studies adopt computable general equilibrium (CGE) models and implement the scenarios of reducing tariff equivalents in services sectors to analyze the effect of services trade liberalization. However, using tariff equivalents as shocks cannot exactly capture the effects of services trade liberalization. Commercial presence usually accompanies by great amount of foreign direct investment (FDI). The effect of FDI on real GDP tends to be positive in the scenarios of reducing tariff equivalents. This is not consistent with the conclusion of the econometric studies that indicate FDI may have negative effect on the host country. In other words, the scenarios of cutting tariff equivalents may not sufficiently reflect the impacts of service trade liberalization, particularly the impacts of FDI flows. Accordingly, this paper adopts the Global Trade Analysis Project (GTAP) model to explore the effects of services trade liberalization across the Strait. We construct a FDI database and adopt the gravity model to estimate the FDI flows. In addition to the scenarios of removing tariff equivalents, we also implement the scenarios of FDI and a combination of the two. The three types of service trade liberalization scenarios are respectively simulated under the closures of full employment and unemployment. In sum, there are six simulation scenarios through which we draw the results of real GDP, industrial outputs, imports and exports and make a comparison analysis. All of the simulation results suggest that Taiwan will benefits from services trade liberalization. However, in the scenarios considering only the effect of FDI, China will experience a negative economic impact due to a net FDI outflow to Taiwan. In addition, the simulation results indicate that the net FDI outflow and inflow are crucial in determining the impacts on the macro-economy. Developing some strategies to attract FDI inflow in long-run is the priority in making effective response measure. Moreover, not all services sectors will benefit from the liberalization. The government should adopt some compensation and supporting policies to prevent those sectors from losing competitiveness. Finally, under the scenarios of unemployment, the effect of services trade liberalization on economy is more significant. In an ear of unemployment, therefore, trade liberalization enlarges market scale, and services as a key driver stimulating economic growth. A coordinated set of measure for enhancing labor participation (such as training, job attachment, job placement and post-placement services) can help to realize the economic gain from service trade liberalization.