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The expected benefits of trade liberalization for world income and development: Opening the “black box” of global trade modeling

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  • Bouet, Antoine

Abstract

"Trade liberalization is expected to act positively on world economic development and poverty alleviation, both of which have become high priorities of the international community. This emphasis explains why numerous studies have focused on assessing the expected benefits of trade liberalization on development. The main empirical tools for these assessments have been the use of spatial and nonspatial partial equilibrium models, gravity equations, and single- and multicountry computable general equilibrium models (CGEMs). Multicountry CGEMs, however, have produced strikingly divergent results. As demonstrated by recent studies, the associated increase in world welfare from full trade liberalization ranges from 0.2 to 3.1 percent—results that differ by a factor of 15! The objective of this study is to examine the efficiency of trade modeling in capturing the benefits from trade liberalization. It provides a survey of methodologies utilized to assess the impact of trade liberalization, putting an emphasis on multicountry CGEMs, and examines the extent to which such assessments diverge. The survey also demonstrates the benefits of “complementary analysis,” which utilizes different methodologies to study a specific topic. The report presents global modeling results using a general equilibrium model—the modeling international relations under applied general equilibrium (MIRAGE) model—the results of which are compared to those obtained in recent studies. Using the MIRAGE model,1 full trade liberalization is estimated to increase world real income by US$100 billion (+0.33 percent) after 10 years of implementation. This trade reform would be development-friendly, as it entails a larger growth rate of real income for developing countries and especially for least-developed countries." "Authors' Abstract

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series Food policy reviews with number 8.

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Date of creation: 2008
Date of revision:
Handle: RePEc:fpr:fprevi:8

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Related research

Keywords: Trade modeling; Poverty alleviation; Assessment; trade liberalization; Computable general equilibrium (CGE) modeling; Development; agricultural sector; Agricultural prices; Globalization;

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References

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  1. Reimer, Jeffrey J., 2002. "Estimating the Poverty Impacts of Trade Liberalization," GTAP Working Papers 1163, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  2. Patrick A. Messerlin, 2001. "Measuring the Costs of Protection in Europe: European Commercial Policy in the 2000s," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 102.
  3. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  4. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
  5. T. Takayama, 1967. "International Trade And Mathematical Programming," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 11(1), pages 36-48, 06.
  6. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  7. Takayama, T., 1967. "International Trade And Mathematical Programming," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 11(01), June.
  8. Howard J. Wall, 1999. "Using the gravity model to estimate the costs of protection," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 33-40.
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Cited by:
  1. Gustavo HERNÁNDEZ, 2013. "Una reseña de los efectos del Tratado de Libre Comercio entre Colombia y Estados Unidos," ARCHIVOS DE ECONOMÍA 011204, DEPARTAMENTO NACIONAL DE PLANEACIÓN.

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