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Predicting Trade Expansion under FTAs and Multilateral Agreements

Author

Listed:
  • Dean A. DeRosa

    (ADR International Ltd.)

  • John P. Gilbert

    (Utah State University)

Abstract

This paper examines the historical record of eight recent free trade agreements (FTAs). It also investigates the predictive power of two popular quantitative world trade models—the single-equation gravity model and the multiequation comput-able general equilibrium (CGE) model—as applied to three major trade liberalization agreements adopted during the 1990s: Mercosur, NAFTA, and the Uruguay Round Agreement, using the Rose gravity model and the GTAP general equilibrium model. Both models are found accurate in some instances, but intervening influences in the wake of trade liberalization episodes confound the challenge of drawing a strong conclusion in favor of one modeling approach over the other. Between the “naïve” gravity model and “naïve” CGE model predictions, we find that the former tends to overpredict intrabloc trade expansion (especially over horizons of five years and less) while the latter tends to underpredict. CGE models remain favored for ex post analysis of welfare impacts and the direct and indirect linkages between policy reforms and the numerous other economic variables of concern to policymakers and the public at large.

Suggested Citation

  • Dean A. DeRosa & John P. Gilbert, 2005. "Predicting Trade Expansion under FTAs and Multilateral Agreements," Working Paper Series WP05-13, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp05-13
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Zhuang, Renan & Koo, Won W., 2006. "Impacts of Sugar Free Trade Agreements on the U.S. Sugar Industry," 2006 Annual meeting, July 23-26, Long Beach, CA 21486, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Hung-Gay Fung & Jian Zhang, 2007. "An Assessment of the Closer Economic Partnership Arrangement Between China and Hong Kong," Chinese Economy, Taylor & Francis Journals, vol. 40(2), pages 36-50, April.
    3. Scott L. Baier & Jeffrey H. Bergstrand & Peter Egger & Patrick A. McLaughlin, 2008. "Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism," The World Economy, Wiley Blackwell, vol. 31(4), pages 461-497, April.
    4. Zhuang, Renan & Koo, Won W., 2007. "Implications of Growth in China for the U.S. and Other Countries," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 10257, Western Agricultural Economics Association.
    5. Berthold Busch & Jürgen Matthes, 2016. "Brexit: The Economic Impact – A Survey," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(2), pages 37-44, August.
    6. DJEMMO FOTSO, Arnaud, 2014. "The potential effects of the ECCAS Free Trade Area on Trade Flows," MPRA Paper 59863, University Library of Munich, Germany.
    7. Tamini, Lota & Ghazalian, Pascal & Gervais, Jean-Philippe & Larue, Bruno, 2006. "Domestic support and tariff reductions in the presence of non-tariff barriers: A gravity model for primary and processed agricultural products," MPRA Paper 2743, University Library of Munich, Germany, revised 01 Dec 2006.
    8. Scott L. BAIER & Jeffrey H. BERGSTRAND & Peter EGGER, 2009. "The Growth Of Regional Economic Integration Agreements And The Middle East," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 11-30.
    9. Indira M. Hapsari & Carlos Mangunsong, 2006. "Determinants of AFTA Members’ Trade Flows and Potential for Trade Diversion," Working Papers 2106, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    10. Abbott, Philip & Bentzen, Jeanet & Tarp, Finn, 2009. "Trade and Development: Lessons from Vietnam's Past Trade Agreements," World Development, Elsevier, vol. 37(2), pages 341-353, February.
    11. Innwon Park, 2006. "East Asian Regional Trade Agreements: Do They Promote Global Free Trade?," Pacific Economic Review, Wiley Blackwell, vol. 11(4), pages 547-568, December.
    12. Sami Bensassi & José de Sousa & Joachim Jarreau, 2013. "Preferential Trade Agreements Proliferation: Sorting out the Effects," Working Papers 2013-04, CEPII research center.
    13. Elena IANCHOVICHINA & Will MARTIN, 2006. "Trade Impacts of China's World Trade Organization Accession," Asian Economic Policy Review, Japan Center for Economic Research, vol. 1(1), pages 45-65.

    More about this item

    Keywords

    gravity models; CGE models; regional trading arrangements;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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