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Predicting Trade Expansion under FTAs and Multilateral Agreements

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Author Info
Dean A. DeRosa (ADR International Ltd.)
John P. Gilbert (Utah State University)

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Abstract

This paper examines the historical record of eight recent free trade agreements (FTAs). It also investigates the predictive power of two popular quantitative world trade models—the single-equation gravity model and the multiequation comput-able general equilibrium (CGE) model—as applied to three major trade liberalization agreements adopted during the 1990s: Mercosur, NAFTA, and the Uruguay Round Agreement, using the Rose gravity model and the GTAP general equilibrium model. Both models are found accurate in some instances, but intervening influences in the wake of trade liberalization episodes confound the challenge of drawing a strong conclusion in favor of one modeling approach over the other. Between the “naïve” gravity model and “naïve” CGE model predictions, we find that the former tends to overpredict intrabloc trade expansion (especially over horizons of five years and less) while the latter tends to underpredict. CGE models remain favored for ex post analysis of welfare impacts and the direct and indirect linkages between policy reforms and the numerous other economic variables of concern to policymakers and the public at large.

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Paper provided by Peterson Institute for International Economics in its series Peterson Institute Working Paper Series with number WP05-13.

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Date of creation: Oct 2005
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Handle: RePEc:iie:wpaper:wp05-13

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Related research
Keywords: gravity models; CGE models; regional trading arrangements;

Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Diao, Xinshen & Somwaru, Agapi, 2000. "An Inquiry on General Equilibrium Effects of MERCOSUR--An Intertemporal World Model," Journal of Policy Modeling, Elsevier, vol. 22(5), pages 557-588, September. [Downloadable!] (restricted)
  2. Greenaway, David & Milner, Chris, 2002. "Regionalism and Gravity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 574-85, December. [Downloadable!] (restricted)
  3. Mary E. Burfisher & Sherman Robinson & Karen Thierfelder, 2001. "The Impact of NAFTA on the United States," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 125-144, Winter. [Downloadable!] (restricted)
  4. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Francois, Joseph & McDonald, Brad & Nordström, Håkan, 1996. "A User's Guide to Uruguay Round Assessments," CEPR Discussion Papers 1410, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. David G. Mayes, 1978. "The Effects Of Economic Integration On Trade," Journal of Common Market Studies, Blackwell Publishing, vol. 17(1), pages 1-25, 09. [Downloadable!] (restricted)
  7. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March. [Downloadable!]
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  8. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June. [Downloadable!] (restricted)
  9. John Gilbert & Thomas Wahl, 2002. "Applied General Equilibrium Assessments of Trade Libereralisation in China," The World Economy, Blackwell Publishing, vol. 25(5), pages 697-731, 05. [Downloadable!] (restricted)
  10. Xinshen Diao & Agapi Somwaru, 1999. "Mercosur And The U.S.: An Intertemporal General Equilibrium Evaluation Of The Regional Integration," International Economic Journal, Korean International Economic Association, vol. 13(1), pages 27-43, April. [Downloadable!] (restricted)
  11. Peter Egger, . "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," WIFO Working Papers 141, WIFO. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zhuang, Renan & Koo, Won W., 2006. "Impacts of Sugar Free Trade Agreements on the U.S. Sugar Industry," 2006 Annual meeting, July 23-26, Long Beach, CA 21486, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Zhuang, Renan & Koo, Won W., 2007. "Implications of Growth in China for the U.S. and Other Countries," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 10257, Western Agricultural Economics Association. [Downloadable!]
  3. Indira M. Hapsari & Carlos Mangunsong, 2006. "Determinants of AFTA Members’ Trade Flows and Potential for Trade Diversion," Working Papers 2106, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada.. [Downloadable!]
  4. Tamini, Lota & Ghazalian, Pascal & Gervais, Jean-Philippe & Larue, Bruno, 2006. "Domestic support and tariff reductions in the presence of non-tariff barriers: A gravity model for primary and processed agricultural products," MPRA Paper 2743, University Library of Munich, Germany, revised 01 Dec 2006. [Downloadable!]
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