The IA-CEPA and sector adjustments: A specific-factors model of production

The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), is expected to increase trade flows between the two largest economies in the region potentially benefiting 280 million consumers. With highest level of trade, changes in output and payment to factors of production can be anticipated. We use the Specific Factors model of production to estimate the magnitude of these changes and results show substantial adjustments. The attempt to better integrate both economies through the IA-CEPA, could have important implications for employment, especially for Australia.