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Regional Trade Agreements versus Global Trade Liberalisation: Implications for a Small Island Developing State

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  • John Asafu-Adjaye
  • Renuka Mahadevan

Abstract

Abstract This study undertakes an empirical investigation of the macroeconomic and sectoral impacts of two forms of regional trade agreements vis-à-vis global trade liberalisation on a small island country, using Fiji as a case study. In order to capture the feedback effects of such a complex set of policies, we employ a dynamic computable general equilibrium model of the Fijian economy to investigate (i) the impact of the Pacific Island Countries Trade Agreement (PICTA), (ii) the impact of PICTA, the Pacific Agreement for Closer Economic Relations (PACER), and the Economic Partnership Agreements (EPAs), (iii) the impact of full tariff liberalisation (i.e. tariff removal only), and (iv) the impact of full trade liberalisation, with removal of both tariff and non-tariff barriers. While PICTA consistently provides the least benefits across a range of macroeconomic indicators including real output, welfare, trade volumes and employment, full trade liberalisation involving the removal of tariff and non-tariff barriers provides the greatest benefits compared to the other scenarios in terms of real output. However, the latter scenario is outperformed by PICTA, PACER, the EPAs and full tariff liberalisation in terms of welfare effects, trade volumes and employment. The policy implications hold important lessons for developing countries considering trade liberalisation. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd.

Suggested Citation

  • John Asafu-Adjaye & Renuka Mahadevan, 2009. "Regional Trade Agreements versus Global Trade Liberalisation: Implications for a Small Island Developing State," The World Economy, Wiley Blackwell, vol. 32(3), pages 509-529, March.
  • Handle: RePEc:bla:worlde:v:32:y:2009:i:3:p:509-529
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    References listed on IDEAS

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    Cited by:

    1. Gani, Azmat & Clemes, Michael D., 2013. "Modeling the effect of the domestic business environment on services trade," Economic Modelling, Elsevier, vol. 35(C), pages 297-304.

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