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Welfare impact of a bilateral trade agreement

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Abstract

We develop a general equilibrium model and derive sufficient conditions for a trade agreement to be welfare-enhancing for a country. Our sufficient conditions require that the unconditional mean of the real GDP of the domestic country be higher and the unconditional mean of the total real import of the domestic country from the countries outside the trading block be lower following the trade agreement. We apply the model on U.S.-Australia trade agreement. Our results meet the sufficient conditions. Therefore, we conclude that the U.S.-Australia trade agreement has helped enhancing U.S. welfare.

Suggested Citation

  • Adhikari, Deergha Raj, 2009. "Welfare impact of a bilateral trade agreement," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(2), pages 135-143.
    • Handle: RePEc:ris:ecoint:0006
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    1. Jiandong Ju & Kala Krishna, "undated". "Market Access and Welfare Effects of Free Trade Areas without Rules of Origin," EPRU Working Paper Series 96-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    2. Adhikari, Deergha Raj, 2006. "An Intervention Analysis of a Trade Policy," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 59(3), pages 277-284.
    3. Adhikari, Deergha Raj, 2003. "Evaluating a Trade Policy Using a Revealed Preference Approach," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 56(4), pages 411-421.
    4. Lopez, Ramon & Panagariya, Arvind, 1992. "On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs," American Economic Review, American Economic Association, vol. 82(3), pages 615-625, June.
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    More about this item

    Keywords

    NAFTA; Revealed-preference; Trade-reform; Welfare; Intervention-analysis;
    All these keywords.

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook

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