CoPS/IMPACT Working Paper Number G-153

Title: Modelling the Potential Benefits of an Australia-China free Trade Agreement

Authors: Yinhua Mai, Philip Adams, Mingtai Fan, Ronglin Li and Zhaoyang Zheng


In this study, we simulated three potential scenarios of an Australia-China Free Trade Agreement (FTA): removal of border protection on merchandise trade, investment facilitation, and removal of barriers to services trade. The analytical framework is a multi-country, multi-sector computable general equilibrium model, the Monash-Multi-Country (MMC) model. The FTA is found to deepen the two-country's economic partnership developed in the past fifteen or so years. On one hand, it sharpens the competitiveness of the Chinese manufacturing sector by reducing its costs of intermediate inputs. On the other hand, it raises the welfare of Australian consumers through improved terms of trade. In achieving a better utilisation of resources, adjustment of labour between sectors does occur. However, such adjustment is small in scale compared with what is occurring in the two countries amid globalisation without an FTA.

JEL classification: D58, F15, F21, O53

Keywords: China, Australia, FTA, investment liberalisation.

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