The Gains of Economic Integration: Substantive Evidence for an Australia-Korea Free Trade Agreement

Abstract On 6 December 2006, Australia and Korea announced a joint study on a possible Australia-Korea free trade agreement (AKFTA) to promote trade and economic relations between the two countries. The paper provides empirical evidence on the possible gains and their transmission mechanism from this agreement. Significantly, it uses a new economic policy modelling approach, the endogenous gravity theory (Tran Van Hoa, 2004) to provide credible and substantive causal findings and subsequent forecasts, as distinct from geopolitical economy arguments and scenarios, to evaluate the possible gains of the AKFTA to inform discussion and policy advice.