A CGE Analysis on Taiwan's Participation in Regional Comprehensive Economic Partnership: A Comparison Analysis under Different Labor Market Specifications

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In recent years, there is a rapid development in the economic cooperation and trade liberalization among the Asian countries. Particularly, the Regional Comprehensive Economic Partnership (RCEP) has drawn considerable attention. In view of the fact that Taiwan has high degree of dependence on foreign trade and a close industrial cooperation with the RCEP member countries, Taiwan’s participation in the RCEP is expected to benefit its macro-economy and industrial development. This thesis adopts a global computable general equilibrium (CGE) model, named Global Trade Analysis Project (GTAP), to analyze the economy-wide impact of Taiwan’s participation in RCEP. The main purpose is to highlight the significance of labor market specification. To achieve such a research goal, we design four simulation scenarios to simulate the impact of Taiwan’s participation in the RCEP, consisting of full employment, real wage rigidity, real wage rigidity considering the capacity of labor supply, and wage curve. The main conclusions drawn from the numerical results are summarized as follows. First, the economic impacts might be overestimated in the scenario of wage rigidity without considering the capacity of labor supply. To fix this problem, it is necessary to account for the availability of unemployed labor forces. Second, the RCEP will benefit all participation countries in terms of real GDP growth. In the case of underemployment, the economic benefits are more significant as a result of an increase in the labor employment. Third, the simulation results under the scenario of wage curve lie between those under full employment and those under real wage rigidity. The discrepancy in the numerical results can be explained by the differences in the change of labor employment. Finally, elasticity associated with wage curve is the key factor determining the change in labor employment. The sensitivity analysis suggests that the simulation results under the scenario of wage curve are similar to those under the scenario of real wage rigidity (full employment) if a sufficiently small (large) elasticity is specified. In summary, labor market specification significantly influences the impact assessment associated with free trade agreements. Future researches should adopt appropriate specifications and scenarios for a better prediction of the economic impacts of the trade liberalization.