Endnotes

¹See the United Nations Conference on Trade and Development (2008). China's share in the developing world's FDI stock grew from 3.9% to 7.7% over the same period.

²Although oil-producing countries have also run large surpluses reflecting high oil prices, this paper does not discuss these countries' adjustment issues.

³See Kawai and Zhai (2009) for a model-based analysis of the short- to medium-term dynamic adjustment of the Asian economies in the face of the current global economic crisis.

⁴The extensive margin refers to the number of exporting firms and traded goods or varieties, while the intensive margin refers to the volume of trade of existing exporting goods or firms.

⁵The net capital flow includes both portfolio investment and FDI, which are not distinguished in the model. Although interesting and important, it is still difficult to explicitly model FDI in a theoretically consistent and sound way in a CGE framework. For some recent work along this direction, see Markusen, Rutherford, and Tarr (2005) and Mérette et al (2008).

⁶There have been several studies which quantitatively examine the effects of East Asian FTAs using the CGE approach. See, for example, Francois and Wignaraja (2008), Kawai and Wignaraja (2008), Lee and van der Mensbrugghe (2008), Urata and Kiyota (2005), and Zhai (2006). Most of these studies suggest that East Asian economies gain significantly from a regional FTA, and a broad and deep regional FTA constitutes an important step toward global, multilateral liberalization.

⁷As the protection rates in the GTAP 7 database are estimated for the 2004 base year, our base year scenario captures the effects of those FTAs that had been implemented before 2004, but does not reflect the impacts of subsequent FTAs which took effect after 2004, such as the Korea-Chile FTA and ASEAN-PRC FTA.

⁸The model assumes that there are no fixed costs for the trade of agricultural and mining products.

⁹Some of the earlier studies on the correction of global imbalances predicted much larger dollar depreciation associated with the unwinding of the US current account deficit. For example, Obstfeld and Rogoff (2005) concluded that a 35–50% CPI-based real depreciation of the US dollar is needed to eliminate a current account deficit of 5% of GDP in the US. However, the recent study by Corsetti, Martin, and Pesenti (2008), which incorporated trade adjustment in the extensive margin, suggested a smaller exchange rate depreciation associated with the adjustment. Their model results showed that closing the US current account deficit from 6.5% of GDP to zero leads to a 1.1% CPI-based real dollar depreciation and a 6.4% deterioration of the terms of trade, as well as a 6% fall in long-term consumption of the US.

¹⁰Malaysia and Singapore are aggregated as one individual region in the CGE model.

¹¹There are some exceptions to this. For example, a least developed country enjoying preferential trade access to developed country markets could lose if the removal of such preferences were to create large losses that more than offset the gains brought about by global liberalization.

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