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

Author

Listed:
  • Drusilla K. Brown

    (Tufts University)

  • Kozo Kiyota

    (Yokohama National University)

  • Robert M. Stern

    (University of Michigan)

Abstract

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.

Suggested Citation

  • Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2005. "Computational Analysis of the Free Trade Area of the Americas (FTAA)," Working Papers 528, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:528
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    File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers526-550/r528.pdf
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    References listed on IDEAS

    as
    1. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2003. "Multilateral, Regional and Bilateral Trade-Policy Options for the United States and Japan," The World Economy, Wiley Blackwell, vol. 26(6), pages 803-828, June.
    2. 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.
    3. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
    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. repec:wsi:wschap:9789812798091_0013 is not listed on IDEAS
    6. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2000. "Computational Analysis of the Accession of Chile to the NAFTA and Western Hemisphere Integration," The World Economy, Wiley Blackwell, vol. 23(2), pages 145-174, February.
    7. 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.
    8. 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.
    9. 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.
    10. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2006. "Computational Analysis of the Menu of US-Japan Trade Policies," The World Economy, Wiley Blackwell, vol. 29(6), pages 805-855, June.
    11. 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.
    12. 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.
    13. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2001. "CGE Modeling and Analysis of Multilateral and Regional Negotiating Options," Discussion Papers Series, Department of Economics, Tufts University 0108, Department of Economics, Tufts University.
    14. Drusilla K. Brown & Robert M. Stern, 2009. "Computable General Equilibrium Estimates of the Gains from US-Canadian Trade Liberalization," World Scientific Book Chapters,in: Globalization And International Trade Policies, chapter 13, pages 425-481 World Scientific Publishing Co. Pte. Ltd..
    15. 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, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Alan V. Deardorff & Robert M. Stern, 2009. "Globalization's Bystanders: Does Trade Liberalization Hurt Countries That Do Not Participate?," World Scientific Book Chapters,in: Globalization And International Trade Policies, chapter 3, pages 53-75 World Scientific Publishing Co. Pte. Ltd..
    2. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2006. "Computational Analysis of the Menu of US-Japan Trade Policies," The World Economy, Wiley Blackwell, vol. 29(6), pages 805-855, June.
    3. Kevin Gallagher, 2011. "Trading Away Stability and Growth: United States Trade Agreements in Latin America," Working Papers wp266, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Kozo Kiyota & Robert M. Stern, 2007. "Economic Effects of a Korea-U.S. Free Trade Agreement," Working Papers 557, Research Seminar in International Economics, University of Michigan.
    5. Kym Anderson, 2012. "Costing Global Trade Barriers, 1900 to 2050," Departmental Working Papers 2012-08, The Australian National University, Arndt-Corden Department of Economics.
    6. Ernesto Valenzuela & Kym Anderson & Thomas Hertel, 2008. "Impacts of trade reform: sensitivity of model results to key assumptions," International Economics and Economic Policy, Springer, vol. 4(4), pages 395-420, February.

    More about this item

    Keywords

    Trade liberalization; Globalization;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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