Preferential Trade Agreements and Welfare: General Equilibrium Analysis
This paper studies the welfare effects of a preferential trade agreement (PTA) within a general equilibrium framework following Eaton and Kortum (2002) and conducts a comparative statics analysis of the equilibrium. The paper provides a closed-form analysis with no assumption of balanced trade and analyzes how a PTA affects the price level, trade flows, and welfare of both member and nonmember countries. We show that a PTA decreases the price level of not only member but also nonmember countries. We also show that a positive coalition externality can arise in that a nonmember country can gain from the establishment of a PTA. Our analysis indicates that countries possessing a large nonmanufacturing sector relative to the economy or a high level of technology are more likely to gain from a coalition externality. Under no assumption of balanced trade, our analysis demonstrates that changes in tariff revenues and labor mobility between tradable and nontradable sectors are a key factor affecting welfare and, thus, countriesâ€™ incentives to join a PTA. Finally, using a calibrated model for 38 countries, we estimate price and welfare changes under several scenarios of the Trans-Pacific Partnership (TPP) and numerically demonstrate our theoretical results. equilibrium model to explore how a Trans-Pacific Partnership affects each countryâ€™s welfare and trade flows. We decompose the total change of trade flows from member countries into income effects and substitution effects, and investigate the factors that affect trade flows. We demonstrate that a positive coalition externality could exist in that some nonmember countries could gain more than member countries and further investigate under which circumstances it arises.
|Date of creation:||10 Jul 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +61 7 3365 6570
Fax: +61 7 3365 7299
Web page: http://www.uq.edu.au/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Hummels & Jun Ishii & Kei-Mu Yi, 1999.
"The nature and growth of vertical specialization in world trade,"
72, Federal Reserve Bank of New York.
- Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
- Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009.
"New Trade Models, Same Old Gains?,"
NBER Working Papers
15628, National Bureau of Economic Research, Inc.
- Al-Najjar, Nabil I., 2004. "Aggregation and the law of large numbers in large economies," Games and Economic Behavior, Elsevier, vol. 47(1), pages 1-35, April.
- Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007.
"Negotiating free trade,"
Journal of International Economics,
Elsevier, vol. 73(1), pages 1-30, September.
- Philippe Aghion & Pol Antràs & Elhanan Helpman, 2004. "Negotiating Free Trade," NBER Working Papers 10721, National Bureau of Economic Research, Inc.
- Helpman, Elhanan & Antras, Pol & Aghion, Philippe, 2007. "Negotiating Free Trade," Scholarly Articles 3351239, Harvard University Department of Economics.
- Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
- John B. Burbidge & James A. DePater & Gordon M. Myers & Abhijit Sengupta, 1996.
"A Coalition-formation Approach to Equilibrium Federations and Trading Block s,"
Department of Economics Working Papers
1996-05, McMaster University.
- Burbidge, John B. & James A. DePater & Gordon M. Meyers & Abhijit Sengupta, 1997. "A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs," American Economic Review, American Economic Association, vol. 87(5), pages 940-56, December.
- James E. Anderson & Eric van Wincoop, 2000.
"Gravity with Gravitas: A Solution to the Border Puzzle,"
Boston College Working Papers in Economics
485, Boston College Department of Economics.
- James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
- James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
- Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2010.
"What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas,"
NBER Working Papers
16262, National Bureau of Economic Research, Inc.
- Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 581-608.
- Wilson, Charles A, 1980. "On the General Structure of Ricardian Models with a Continuum of Goods: Applications to Growth, Tariff Theory, and Technical Change," Econometrica, Econometric Society, vol. 48(7), pages 1675-1702, November.
- Patrick J. Kehoe & Timothy J. Kehoe, 1994. "Capturing NAFTA's impact with applied general equilibrium models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 17-34.
- Juyoung Cheong & Shino Takayama, 2013. "Who Gains the Most in Preferential Trade Agreements?," Discussion Papers Series 475, School of Economics, University of Queensland, Australia.
When requesting a correction, please mention this item's handle: RePEc:qld:uq2004:482. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SOE IT)
If references are entirely missing, you can add them using this form.