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A Global Baltic - Potential Gains from Trade Liberalisation in the Baltic Sea States

Author

Listed:
  • Kinnman, S.
  • Lodefalk, M.

Abstract

What would a “Global Baltic”, liberalised to the rest of the world, mean for national income and trade patterns of the Baltic Sea region? Although the countries have displayed substantial economic growth and relatively high trading activity over the last decade, facilitated by politicoeconomic reforms, significant trade barriers still exist in the region. Their removal might further boost the economies of the region. The aim of this study is to analyse the potential effects from unilateral trade liberalisation, using a CGE-model with monopolistic competition in most aggregate sectors. Besides addressing the “usual suspects” (tariffs, subsidies and tariffequivalents for restrictions to services trade) as well as trade facilitation in the main simulation, we also address some core non-tariff-measures (NTM) in a separate simulation. The NTMsimulation is based on recently released data. The effect of a “Global Baltic” would be a substantial boost to national income and trade of the region: a 1 and 0.9 percent increase in regional income, in the main and the NTM-scenario, respectively. In other words, liberalisation would sustain growth in the area. Particularly strong results are found for the group of emerging market economies of the region. The largest income gains stem from a country’s own liberalisation. With respect to the different simulation elements, trade facilitation and reductions in NTMs bring the major sources of gains. In the main as well as the NTM scenario, effects on national income are primarily due to elimination of dead-weight losses caused by rules and regulations at, or behind the border and more efficient allocation of resources. The income effects from scale economies are slightly negative in both scenarios on an aggregate level. On a country level, the results show that different reforms create different incentives for production, and that the net-effect on a country’s national income will to a large extent be related to which sectors are expanding/contracting. Structurally, the expected joint effect of the two simulation scenarios is a move towards services and industrial production and export.

Suggested Citation

  • Kinnman, S. & Lodefalk, M., 2008. "A Global Baltic - Potential Gains from Trade Liberalisation in the Baltic Sea States," Conference papers 331797, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331797
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F2 - International Economics - - International Factor Movements and International Business
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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