Evaluation of the Implementation of the Free Trade Agreement Between the EU and its Member States and the Republic of Korea

Tasks

This project conducts an evaluation of the EU's free trade agreement with Korea that took effect in July 2011. The agreement is seen as the most modern and deepest agreement currently in existence. In addition to reductions in tariffs, it covers a broad range of non-tariff trade constraints and features settlements covering environmental, social and labour-law related rules. As part of a consortium, the ifo Institute is responsible for quantitative economic analyses over a total period of 14 months. The goal is to clarify whether and to what degree the agreement has stimulated trade in goods and services between the EU and Korea; and to assess its impact on income, prices, employment structure, CO2 emissions and further variables.

Methods

The analysis will be conducted in three stages: firstly, a descriptive data analysis will be carried out. This will anticipate the econometric design of the study by comparing developments in trade prior to and after the agreement was implemented in terms of affected (EU-Korea) and unaffected (e.g. EU-Japan) bilateral relations. In a second step disaggregated trade data will be formally analysed using a gravity model. Other influence factors and the effect of the agreement on exports and imports can be calculated individually using this model. In the third and final step the econometric results will be used to identify, with the help of the ifo trade model, reductions in trade costs due to the agreement; and to calculate its effects on overall trade, and general equilibrium outcomes such as GDP, CO2 emissions, and labor reallocation. The simulation is important because it is the only way to investigate trade diversion effects.

Data and other Sources

Eurostat, World-Input-Output Data Base, UN Comtrade, World Bank Development Indicators, Statistik Korea.