Will Japan, Taiwan or the US be isolated by China? A macroeconomic game approach
Journal
Japan and the World Economy
Journal Volume
22
Journal Issue
1
Pages
59-68
Date Issued
2010
Author(s)
Abstract
In Taiwan, Japan and even the United States, economic isolation has become a major concern due to the growing Chinese economy, which may lead to welfare losses for the isolated countries. On the basis of the framework developed by Plasmans et al. [Plasmans, J., Engwerda, J., van Aarle, B., Di Bartolomeo, G., Michalak, T., 2005. Dynamic Modelling of Monetary and Fiscal Cooperation Among Nations. Springer], this paper establishes a four-player game with an open-loop information structure to measure possible losses by an international policy coordination approach instead of the conventional free trade agreements. We simulate macroeconomic adjustments of the four countries according to the different institutional scenarios and economic shocks. The baseline simulation and sensitivity analyses indicate that Taiwan can get benefit by participating in coalitional mechanisms including China. In addition, most of the feasible policy coalitions cannot come into effect without US participation. This implies that at the current stage the US rather than China should be the main economic partner of Taiwan and Japan to prevent them from being economically marginalized. ? 2009 Elsevier B.V. All rights reserved.
Subjects
East Asia; Economic isolation; Macroeconomic game; Policy coordination
SDGs
Type
journal article