Estimating the Economic Impact of an FreeTrade

Agreement onASEAN. Case study: Vietnam and the

ASEAN-Australia-NewZealand Free Trade Agreement
Scott H. Murray & Tai H. Pham
Discipline of Mathematics & Statistics
August 2014
Contents
1. Problemstatement
2. Goal and objectives
3. Literature review
4. Methodology
5. Main activities and result
6. Progress and work Plan
7. Conclusion
1. Problem statement
ASEAN is experiencing a rapid proliferation of FTAs.
This creates a potential noodle bowl situation.
The ASEAN Economic Community (AEC) by 2015.
Many models used to estimate economic effects of
an FTA.
It is relatively rare to use international Input-Output
model (IIO) in ASEAN countries.
Goal: Estimate the economic impact of an FTA onASEAN
countries.
2. Goal and objectives
Objective:
1. Establish theoretical framework of Extended I-O
Models.
2. Establish theoretical framework of trade indicators.
3. Carry out the analysis for the impact of the
AANZFTA on Vietnam.
4. Make recommendations to Vietnam government
and entrepreneurs to implement AANZFTA.
3. Literature review
Thetheoryfor ExtendedInput-outputmodels:
Francois Quesney, Tableau Economique (1758).
AdamSmith, Division of labor (1776).
Wassily Leontief, Leontief Input-Output model (1951).
Walter Isard, Isards Model (1951).
Chenery and Moses Model (1953).
Riefler-Tieouts regional Input-Output model (1970).
3. Literature review (cont)
Theory of I-O multipliers :
Leontief (1938); Isard (1951); Richardson(1985).
Useandmisuseof I-Omultipliers:
Coughlin and Mandelbaum(1991); Mills (1993);
Hughes(2003); Grady and Mullen (1988); Harris (1997);
Siegfried, Sanderson, and McHenry (2006).
Use of I-O linkages:
Planting and Guo (2000); Gulihoto, Sonis, and Hewings
(2005).
Vertical specialization of trading blocs.
Hummels, Ishii and Yi (2001); Yi (2001).
3. Literature review (cont)
The theory of complementary or competing economies:
David Ricardo, The theory of comparative advantage
(1817).
Eli Heckscher &Bertil Ohlin, the factor-proportions
theory (1919) & (1933).
Grubel and Lloyd, The trade indicators.
Delphi Method
U.S Census (1790).
Rand Corporation (1950).
Hubacek and Sun, RAS method (2010).
The steps in the procedure of analysis:
4. Methodology
Click 5
Click 7
Click 3
Click
Step 2: Compile Extended Input-Output table
Collecting the data
of I-O table
Making of
import matrices
by member
countries from
trading bloc
and the rest of
the World
Making of export
vectors to
member
countries from
trading bloc and
the rest of the
World
Linking and
balancing
Step 2: National Input-Output table
Intermediate use Final use Total
Industrial
sectors
Quadrant 1
Intermediate use
matrix
(square matrix)
F
ij
Quadrant 2
Final demand
(column vector)
Y
i
Total Output by
industry
(output vector)
X
i
Value added
(primary
inputs)
Quadrant 3
Valua added
(rowvector)
V
j
Quadrant 4
GDP
Total
Total input by
industry
(input vector)
X
j
X
Step 2: Extended Input-Output table
Intermediateuse Final use Total
Country A
Intermediate use
of domestic output
(F
ij
d
)
Domestic final
use of
domestic
Exports
(E
j
d
)
Total use of
domestic
output (X
i
d
)
Member
countries from
trading bloc
Intermediate use
of imports (F
ij
m
)
Domestic final
use of imports
Re-
Exports
Total use of
imports
(X
i
mm
)
Rest of World
Intermediate use
of imports (F
ij
w
)
Domestic final
use of imports
Re-
Exports
Total use of
imports
(X
i
mw
)
Valua added (V
j
)
Total Total input X
click
Trade indicators
Step 3: Analyse competing and complemetary
Revealed symmetric comparative
advantage index
Revealed symmetric comparative
advantage index
Intra-industry trade index Intra-industry trade index
Trade specialization index Trade specialization index
Bilateral trade intensity index Bilateral trade intensity index
Trade complementarity index Trade complementarity index
Click
Step 5: Translate the programs into the models
1
( ) A
rr rs
I A

The models of imported behaviors for exports

Step 5: Translate the programs into the models
1
( ) A
rr rs
I A

The models of imported behaviors for consumtion

Step 5: Translate the programs into the models
1
( ) A
rr rs
I A

The models of exported behaviors for exports

Step 5: Translate the programs into the models
Using GEMPACK software to build the models
click
General outline of the method
Step 7: Choose the scenario
Recruit
experts
Survey
experts
Synthesise
responses
Consensus !
Feedback
Step 7: Choose the scenario
Consensus !
Feedback
Recruit
experts
Survey
experts
Synthesise
responses
In-depth
interviews
Construct
I-O model
click
5. Main activities and results
Gather data and compile the Extended Input-
Output Table
Delphi method survey
Simulate Scenarios by using GEMPACK
Build trade indicators between Australia New
Zealand and Vietnamese economy
Activities Activities
Establishing the framework to estimate the
economic effects of an FTA for ASEAN
Making recommendations to Vietnam
government and entrepreneur
Results Results
6. Progress and work plan
2011 2012 2013 2014 (plan)
- Literature
review.
- Presenting initial
proposal
- Participating
conferences &
seminars (NUS,
UEH)
- Designing the
Website
- Collecting the
data.
- Seminar (UC, UEH,
NEU)
- In-depth interview
of Vietnamese
experts
- Surveying
Delphi Method
-Establisng
Extended I-O
Table
- Establisng
scenarios
-Check
scenarios
- Writing
Thesis
- Submitting
the papers
7. Conclusion
Thanks for listening!