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Welfare Effects of Trade Liberalisation in Distorted Economies A Dynamic General Equilibrium Assessment for Norway

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  • Taran Fæhn
  • Erling Holmøy

    ()
    (Statistics Norway)

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    Abstract

    A disaggregated intertemporal CGE model is used to simulate the welfare effects in Norway of the recently implemented trade reforms including the WTO agreement, the EEA treaty, the EFTA fishery agreement and an anticipated EEA resolution on shipbuilding. These reforms affect the Norwegian economy through changes in tariffs, Non Tariff Barriers (NTBs), government procurement and subsidy policy as well as shifts in world prices and demand. Reduction of such import barriers that represent real costs for the country is identified as the most important source of welfare gains, through improved terms of trade. Due to initial distortions caused by taxes and imperfect competition, changes in the resource allocation have first order effects on welfare. In particular, this explains why the simulated reduction of employment has a significant negative impact on the total welfare gain.

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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 251.

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    Date of creation: Mar 1999
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    Handle: RePEc:ssb:dispap:251

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    Keywords: Trade Reforms; Intertemporal CGE Model; Welfare;

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    1. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the Internal Market in the European Community: Some Industry Simulations," CEPR Discussion Papers 233, C.E.P.R. Discussion Papers.
    2. Steigum, E.Jr., 1992. "Accounting for Long-Run Effects of Fiscal Policy by Means of Computable Overlapping Generations Models," Papers 05-92, Norwegian School of Economics and Business Administration-.
    3. Richard Harris, 1983. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," Working Papers 524, Queen's University, Department of Economics.
    4. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
    5. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
    6. Tor Jakob Klette, 1994. "Estimating Price- Cost Margins and Scale Economies from a Panel of Microdata," Discussion Papers 130, Research Department of Statistics Norway.
    7. Keuschnigg, Christian & Kohler, Wilhelm K., 1994. "Commercial Policy and Dynamic Adjustment Under Monopolistic Competition," CEPR Discussion Papers 1037, C.E.P.R. Discussion Papers.
    8. Tor Jakob Klette & Astrid Mathiassen, 1995. "Job Creation, Job Destruction and Plant Turnover in Norwegian Manufacturing," Discussion Papers 136, Research Department of Statistics Norway.
    9. Hertel, Thomas W., 1994. "The 'procompetitive' effects of trade policy reform in a small, open economy," Journal of International Economics, Elsevier, vol. 36(3-4), pages 391-411, May.
    10. Erling Holmøy & Torbjørn Hægeland, 1997. "Aggregate Productivity Effects of Technology Shocks in a Model of Heterogeneous Firms: The Importance of Equilibrium Adjustments," Discussion Papers 198, Research Department of Statistics Norway.
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    Cited by:
    1. Turid Avitsland & Jorgen Aasness, 2006. "Combining microsimulation and CGE models: Effects on equality of VAT reforms," Computing in Economics and Finance 2006 132, Society for Computational Economics.
    2. Brita Bye & Karine Nyborg, 1999. "The Welfare Effects of Carbon Policies: Grandfathered Quotas versus Differentiated Taxes," Discussion Papers 261, Research Department of Statistics Norway.

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