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Computational Analysis of the Free Trade Area of the Americas (FTAA)

Author

Listed:
  • Drusilla K. Brown

    (Tufts University)

  • Kozo Kiyota

    (Yokohama National University)

  • Robert M. Stern

    (University of Michigan)

Abstract

We use the Michigan Model of World Production and Trade to assess the economic effects of the Free Trade Area of the Americas (FTAA) that is currently being negotiated among the 34 countries in the region. The model covers 18 economic sectors in each of 22 countries/regions and is based on Version 5.4 of the GTAP database for 1997 together with specially constructed estimates of services barriers and other data on sectoral employment and numbers of firms. The distinguishing feature of the model is that it incorporates some aspects of trade with imperfect competition in the manufacturing and services sectors, including monopolistic competition, increasing returns, and product variety. The modeling focus is on the effects of the bilateral removal of tariffs on agriculture and manufactures and services barriers. Rules of origin and other restrictive measures and the non-trade aspects of the FTAA are not taken into account due to data constraints. The computational results indicate that the FTAA would increase the economic welfare of the FTAA member countries by $118.8 billion, with the largest increases accruing to the United States, $67.6 billion, and to South America, $31.0 billion. The FTAA is trade diverting for most of the rest-of-world, with a welfare reduction of $9.3 billion. In comparison, if the FTAA countries were to adopt unilateral free trade, total FTAA member welfare would increase by $476.8 billion and global welfare by $812.7 billion. If multilateral free trade were adopted by all countries/regions in the global trading system, the welfare effects would be considerably larger, $751.2 billion for the FTAA members and $2.7 trillion globally.

Suggested Citation

  • Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2005. "Computational Analysis of the Free Trade Area of the Americas (FTAA)," Working Papers 528, Research Seminar in International Economics, University of Michigan.
    • Handle: RePEc:mie:wpaper:528
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    References listed on IDEAS

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    1. Drusilla K. Brown & Robert M. Stern, 1989. "U.S.-Canada Bilateral Tariff Elimination: The Role of Product Differentiation and Market Structure," NBER Chapters, in: Trade Policies for International Competitiveness, pages 217-254, National Bureau of Economic Research, Inc.
    2. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2003. "Multilateral, Regional and Bilateral Trade‐Policy Options for the United States and Japan," The World Economy, Wiley Blackwell, vol. 26(6), pages 803-828, June.
    3. J. Francois & H. van Meijl & F. van Tongeren, 2003. "Trade Liberalization and Developing Countries under the Doha Round," Tinbergen Institute Discussion Papers 03-060/2, Tinbergen Institute, revised 30 Aug 2003.
    4. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2005. "Computational Analysis of the US FTAs with Central America, Australia and Morocco," The World Economy, Wiley Blackwell, vol. 28(10), pages 1441-1490, October.
    5. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 9(1), pages 58-73.
    6. Drusilla K. Brown & Robert M. Stern, 2009. "Computable General Equilibrium Estimates of the Gains from US-Canadian Trade Liberalization," World Scientific Book Chapters, in: Globalization And International Trade Policies, chapter 13, pages 425-481, World Scientific Publishing Co. Pte. Ltd..
    7. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
    8. Joseph Francois & Hans Van Meijl & Frank Van Tongeren, 2005. "Trade liberalization in the Doha Development Round [Trade in Manufactures, the Outcome of the Uruguay Round and Developing Country Interests]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 20(42), pages 350-391.
    9. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2006. "Computational Analysis of the Menu of US‐Japan Trade Policies," The World Economy, Wiley Blackwell, vol. 29(6), pages 805-855, June.
    10. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2000. "Computational Analysis of the Accession of Chile to the NAFTA and Western Hemisphere Integration," The World Economy, Wiley Blackwell, vol. 23(2), pages 145-174, February.
    11. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2001. "CGE Modeling and Analysis of Multilateral and Regional Negotiating Options," Discussion Papers Series, Department of Economics, Tufts University 0108, Department of Economics, Tufts University.
    12. World Bank, 2003. "World Development Indicators 2003," World Bank Publications - Books, The World Bank Group, number 13920, December.
    13. Hertel, Thomas W. & Will Martin, 1999. "Would Developing Countries Gain from Inclusion of Manufactures in the WTO Negotiations?," GTAP Working Papers 397, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    14. Bernard Hoekman, 2000. "The next round of services negotiations: identifying priorities and options," Review, Federal Reserve Bank of St. Louis, vol. 82(Jul), pages 31-52.
    15. Deepak Bhattasali & Shantong Li & Will Martin, 2004. "China and the WTO : Accession, Policy Reform, and Poverty Reduction Strategies," World Bank Publications - Books, The World Bank Group, number 14920, December.
    16. Thomas W. Hertel, 2000. "Potential gains from reducing trade barriers in manufacturing, services and agriculture," Review, Federal Reserve Bank of St. Louis, vol. 82(Jul), pages 77-104.
    17. Deardorff, A.V. & Stern, R.M., 1990. ""Introduction" To Computational Analysis Of Global Trading Arrangements," Working Papers 261, Research Seminar in International Economics, University of Michigan.
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    Cited by:

    1. Robert M. Stern & Alan V. Deardorff, 2011. "Globalization's Bystanders: Does Trade Liberalization Hurt Countries That Do Not Participate?," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 31, pages 391-401, World Scientific Publishing Co. Pte. Ltd..
    2. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2006. "Computational Analysis of the Menu of US‐Japan Trade Policies," The World Economy, Wiley Blackwell, vol. 29(6), pages 805-855, June.
    3. Nigel Grimwade & David G. Mayes & Jiao Wang, 2011. "Estimating the Effects of Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume III, chapter 13, Edward Elgar Publishing.
    4. Kevin Gallagher, 2011. "Trading Away Stability and Growth: United States Trade Agreements in Latin America," Working Papers wp266, Political Economy Research Institute, University of Massachusetts at Amherst.
    5. Ernesto Valenzuela & Kym Anderson & Thomas Hertel, 2008. "Impacts of trade reform: sensitivity of model results to key assumptions," International Economics and Economic Policy, Springer, vol. 4(4), pages 395-420, February.
    6. Kozo Kiyota & Robert M. Stern, 2007. "Economic Effects of a Korea-U.S. Free Trade Agreement," Working Papers 557, Research Seminar in International Economics, University of Michigan.
    7. Kym Anderson, 2012. "Costing Global Trade Barriers, 1900 to 2050," Departmental Working Papers 2012-08, The Australian National University, Arndt-Corden Department of Economics.
    8. Julius M. Walecki, 2007. "Changing Business Environments, International Trade And Regional Integration: Who Needs Cafta?," Economic Affairs, Wiley Blackwell, vol. 27(2), pages 73-77, June.

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    More about this item

    Keywords

    Trade liberalization; Globalization;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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