Analysis of the General Equilibrium Effects of KAFTA on the Automobile Industry using the PPML Structural Gravity System

This study analyzed the general equilibrium effect of KAFTA on the automobile industry using the PPML gravity model with 3-way fixed effects. As a result, the partial equilibrium analysis showed that KAFTA had a trade expansion effect of 0.41%∼8.94% for member countries, while the conditional general equilibrium analysis in which changes in multilateral resistance occurred showed that both the inward and outward multilateral resistances of member countries decreased, which caused the trade diversion effect to be over, and this partially offset the initial trade expansion effect. In addition, among non-regional countries, the trade diversion effect was the largest in countries such as India, ROW, Ecuador, and Japan. Furthermore, in the full endowment general equilibrium analysis considering changes in factory-gates prices, production value, and total expenditure, most KAFTA member countries enjoyed the effects of improving product prices, consumer utility, and real output levels through the net trade expansion effect, but Myanmar, Laos, and Korea showed a greater trade diversion effect than trade creation, and in particular, Korea was found to be negatively affected in other indicators.