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

  • Brown, Drusilla K.
  • Kiyota, Kozo
  • Stern, Robert M.

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.

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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 16 (2005)
Issue (Month): 2 (August)
Pages: 153-185

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Handle: RePEc:eee:ecofin:v:16:y:2005:i:2:p:153-185
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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  1. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2004. "Computational Analysis of the Menu of U.S.-Japan Trade Policies," Hi-Stat Discussion Paper Series d04-63, Institute of Economic Research, Hitotsubashi University.
  2. 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.
  3. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 1998. "Computational Analysis of the Accession of Chile to the NAFTA and Western Hemisphere Integration," Discussion Papers Series, Department of Economics, Tufts University 9820, Department of Economics, Tufts University.
  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. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2001. "CGE Modeling and Analysis of Multilateral and Regional Negotiating Options," Working Papers 468, Research Seminar in International Economics, University of Michigan.
  6. Thomas W. Hertel, 2000. "Potential gains from reducing trade barriers in manufacturing, services and agriculture," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 77-104.
  7. 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.
  8. Joseph Francois & Hans Van Meijl & Frank Van Tongeren, 2005. "Trade liberalization in the Doha Development Round," Economic Policy, CEPR;CES;MSH, vol. 20(42), pages 349-391, 04.
  9. Francois, Joseph & van Meijl, Hans & van Tongeren, Frank, 2003. "Trade Liberalization and Developing Countries Under the Doha Round," CEPR Discussion Papers 4032, C.E.P.R. Discussion Papers.
  10. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
  11. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2001. "Multilateral, Regional, and Bilateral Trade-Policy Options for the United States and Japan," Discussion Papers Series, Department of Economics, Tufts University 0109, Department of Economics, Tufts University.
  12. Bernard Hoekman, 2000. "The next round of services negotiations: identifying priorities and options," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 31-52.
  13. 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.
  14. Brown, D.K. & Stern, R.M., 1988. "Computable General Equilibrium Estimates Of The Gains From U.S.-Canadian Trade Liberalization," Working Papers 220, Research Seminar in International Economics, University of Michigan.
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