Stochastic Simulation of the Impacts of the Korea-EU and Korea-US FTAs on the Pork Market in Korea

Abstract

In order to assess the impacts of the Korea-EU and Korea-US FTAs, this paper conducted stochastic simulations using random combinations of elasticities on the demand and supply sides. In order to explain the discrepancy between the decrease in the imported price and tariff reduction, a simulation model was developed in such a way that the market power of pork exporters plays a role. The FTA with the EU was simulated to bring about little influence on the quantity of domestic pork with a relatively big impact on the domestic pork price. After the elimination of the tariff on EU and US pork, the mean of the fall in the quantity of domestic pork was simulated to be 2.51 percent with a standard deviation of 0.6 percent, and the mean of the decrease in the producer price of pork was simulated to be 9.42 percent on average with a standard deviation of 2.18 percent. The simulation results indicate the impacts on domestic price and quantity would become lower if pork exporters exercise market power.