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Trade Liberalization in Latin America and Eastern Europe: The Cases of Ecuador and Slovenia

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  • Sang-Wook Stanley Cho

    ()
    (School of Economics, The University of New South Wales)

  • Julian P. Diaz

    ()
    (Bowdoin College)

Abstract

This paper analyzes the potential effects of two ongoing trade liberalization experiences: Ecuador signing a Free Trade Agreement with the United States and Slovenia joining the European Union as a full member. We construct a static Applied General Equilibrium Model and perform a numerical experiment that consists on eliminating all import tariffs that Ecuador and Slovenia impose on the United States and European Union, respectively. To calibrate our models, we work with Input-Output tables and construct a Social Accounting Matrix for each country. We perform additional numerical experiments, such as sensitivity analysis on the import and export elasticities of substitution, a partial liberalization scenario, the fiscal impact of eliminating the tariff revenues and how this loss can be compensated with other taxes, and an alternative trade liberalization framework for Slovenia. We find that both countries benefit from these trade liberalization reforms, with prices falling in the import sector and production rising in the export sector. However, different forms of trade liberalization (free trade agreement vs. customs union) have different implications on the patterns of trade and welfare.

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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2007-25.

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Length: 40 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:swe:wpaper:2007-25

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Keywords: Trade Liberalization; Free Trade Agreement; Customs Union; Fiscal Policy; Social Accounting Matrix; Ecuador; Slovenia;

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  1. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-51, September.
  2. Timothy J. Kehoe, 1996. "Social accounting matrices and applied general equilibrium models," Working Papers 563, Federal Reserve Bank of Minneapolis.
  3. Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis.
  4. Hummels, David, 1999. "Toward a Geography of Trade Costs," GTAP Working Papers 1162, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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Cited by:
  1. Sang-Wook (Stanley) Cho & Julian P. Diaz, 2008. "Welfare Impact of Trade Liberalization," Discussion Papers 2008-20, School of Economics, The University of New South Wales.

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