General equilibrium evaluation of Japan-Singapore free trade agreement

Japan and Singapore are expected to sign a free trade agreement (FTA) by the early 2002. This paper provides a preliminary assessment of the Japan-Singapore FTA using an 18-region, 15-sector dynamic computable general equilibrium (CGE) model. Bilateral removal of trade barriers in all sectors other than agriculture and food and reductions in customs costs are incorporated in the scenarios. In the absence of positive spillovers to productivity, the FTA is estimated to have a negligible impact. Were the FTA to raise total factor productivity via network externalities within and between the trading partners, the potential benefits of the trade agreement would increase substantially. Furthermore, the relative degree of trade diversion would be significantly smaller in the latter scenario