The Sectoral and Regional Implications of Trade Liberalization

This paper discusses the sectoral and regional implications of trade liberalization on the Japanese economy, using quantitative simulation analyses and a CGE model of global trade. The dynamic aspects of capital formation and productivity improvements are incorporated into a standard static model based on the most updated version of a global trade database. As a result of global trade liberalization, Japan would gain in transport equipment production, and lose in agricultural and processed foods. The relative significance of those adjustment costs in comparison with the macroeconomic benefits may vary according to the partner of bilateral FTAs. Moreover, it must be noted that trade liberalization in agricultural sectors would also be beneficial to the Japanese economy at the macro level, in particular, to consumers. On the other hand, although trade liberalization might more or less benefit all of Japan’s prefectures, the regional differences in income levels would be expanded given the current structures of industries by regions