To What Extent a Possible FTA between China and Kazakhstan Beneficial? A CGE-Based Evidence

Abstract

The Eurasian Economic Union (EAEU) recently conducted a free trade agreement with China, which was signed in 2018 but is not yet in force. This paper utilizes the Computable General Equilibrium (CGE) model with the Global Trade Analysis Project (GTAP) database for quantitative analysis of the economy-wide effects of a hypothetical agreed FTA between Kazakhstan (excluding other members of the EAEU) and China. This proposed FTA has relative importance for the two countries since Kazakhstan is a member of the EAEU and because of the recently imposed Western sanctions on Russia, these sanctions might develop channels that could distort the benefits of EAEU. The paper examines four short- and long-term scenarios involving fixed and flexible current account positions. The results highlight how the elimination of tariffs on bilateral merchandise trade would help both Kazakhstan's and China's economies through a potential free trade agreement. Our results indicate four important policy implications: Firstly, rather than trade diversion, this potential FTA is seen as an enhancing factor in generating a larger trade creation effect. Secondly, resources will be reallocated in each economy to the sectors in which they are more advantageous. Thirdly, in terms of the macroeconomic implications, we find that real GDP, EV, and real consumption all show some gains. Finally, as for the sectoral effects, the findings indicate that bilateral trade would increase, with China's exports to Kazakhstan growing more quickly than those of Kazakhstan to China.