The dynamic trade and welfare effects of RCEP

Abstract

This paper examines the trade and welfare effects of the Regional Comprehensive Economic Partnership (RCEP) using a dynamic multi-region, multi-sector general equilibrium model. By incorporating key innovations such as region-specific heterogeneity, financial market imperfections, and phased trade liberalization, the analysis captures both short- and long-term impacts of RCEP on its member and non-member economies. The findings reveal that RCEP significantly boosts trade and welfare for member countries, particularly China, Korea, and ASEAN, while creating positive spillover effects for non-members with close economic ties to the region. However, the agreement exacerbates regional inequalities within China and presents uneven sectoral impacts, with non-manufacturing sectors benefiting more than manufacturing. The study highlights the critical role of reducing non-tariff barriers and financial frictions to amplify welfare gains, particularly for emerging economies. Additionally, scenarios involving potential membership of the U.S. and India underscore the strategic importance of RCEP in shaping regional and global trade dynamics. This research contributes to the literature on trade agreements by offering a comprehensive, dynamic perspective on the long-term implications of RCEP.