GTAP Model Analysis of the Economic Effects of an Australia-China FTA: Welfare and Sectoral Aspects

The Australia-China Free Trade Agreement (ACFTA) is already in the process of being negotiated by the two governments. This paper employs the Computable General Equilibrium (CGE) model using Global Trade Analysis Project (GTAP) database version 6 for a quantitative analysis of the economic effects of proposed ACFTA. Four scenarios are examined in the paper focusing on flexible and fixed current account positions within short run and long run. Equivalent variation (EV) and real consumption are used to measure the welfare effects resulting from the formation of the ACFTA. The results from the GTAP simulations show positive welfare effects for both Australia and China in all cases. Sectoral results show mixed outcomes.