A Korea-Kenya Free Trade Agreement and Its Economic Impact: A Computable General Equilibrium Approach

Abstract

Purpose – This study assesses the impact of a potential Korea-Kenya FTA on the global economy, which includes the US, EU, UK, China, and Japan, using the Global Trade Analysis Project (GTAP) model. Design/Methodology/Approach – The study employs a static global multi-sector CGE model using the GTAP database version 10 with the base year of 2014. For this study, we aggregate the 141 regions and 65 sectors of the GTAP database into 16 regions and 57 sectors. Four policy simulations were implemented based on tariffs and ad valorem equivalents (AVEs) of non-tariff measures (NTMs) estimated by Kitetu and Ko Jong-Hwan (2021). Findings – Simulation results suggest that the real GDP of Korea will likely increase by 0.001% to 0.002%, with welfare increasing by US$1.8 million to US$74.7 million. In comparison, the real GDP of Kenya will likely rise by 0.003% to 0.045%, while welfare will rise by US$1.8 million to US$ 75.3 million. Imports by both countries will rise at a higher rate than exports. For Kenya, domestic output increases in agriculture, extraction, and service sectors, and for Korea, output goes up in processed food and light and heavy manufacturing sectors. Research Implications – The novelty of this paper is in the first empirical quantification of the economic impact of a Korea-Kenya FTA on not only its members but also its trading partners, such as the US, EU, UK, China, and Japan. Moreover, this study provides a comprehensive overview of the impact of a potential FTA between Korea and Kenya by reducing and eliminating tariffs and AVEs of NTMs.