Economic structural complementarity: how viable is the Korea-EU FTA?

Abstract

Purpose – Economic structural complementarity between country A and country B, or the way the two countries specialize in different industries is a useful tool for the analysis of the likely impact of trade liberalization. Although implicit in earlier work on economic integration, this concept has been overshadowed subsequently, probably because of the “econometrization” of the studies on trade liberalization. This paper aims to discuss first the relevance of the concept of structural complementarity between two economies in the context of regional integration. Second, since the EU and Korea are on the verge of signing a free trade agreement (FTA), it aims to show that measuring economic structural complementarity in the case of these two countries is all the more desirable. Design/methodology/approach – The paper applies a number of indices such as the trade complementarity index and the Kreinin-Finger similarity of export index to the manufacturing sector. Findings – On the whole the EU and Korea are structurally complementary, implying large potential gains from the FTA. However, the existence of two critical industries, namely road vehicles and electrical machinery are revealed. Practical implications – The FTA poses some sectoral challenges to the industries, in particular for the EU, and it calls for appropriate strategies in these areas. Originality/value – This article both clarifies and measures economic structural complementarity, a concept connected with, but not reduced to that of competitiveness. By using several indicators, the present study shows that the manufacturing sectors of the EU and of Korea are on the whole complementary.Electrical equipment, European Union, Free trade, Machine tools, South Korea