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Free Trade Agreements (FTAs) are one of the important controversies in the Korean dairy and milk processing industry. This study estimates the economic impacts of tariff reductions in FTAs using a simulation equilibrium displacement model. For this, we incorporate various tariff schedules under different FTAs into one weighted tariff schedule for 14 different dairy products respectively. We perform a comparative static analysis comparing the year of 2010 (pre-FTAs) and the following years until 2015. To do a research, we collect much information about market variables, parameter values, and estimate demand-supply elasticities. Furthermore, we perform a sensitivity analysis. Based on the predetermined simulated tariff schedules under major FTAs, this study finds that the benefit of food processing industries including milk processing firms is almost 358~366 billion won per year or 5,369~5,489 billion won for 15 years. Also, the direct damage of domestic dairy farms is 4.2 billion won per year or 63.6 billion won for 15 years. The changes of milk selling income show that this damage has emerged since 2016. |
