Why Do the Gains from Trade Reform Vary Between Countries?

Abstract

This paper assesses, both theoretically and empirically, the determinants of differential gains from trade policy reform across countries. The theoretical model shows that asymmetrical features of the world economy, including the relative size of the differentiated products sector in each country, the dominance of domestic markets by indigenous producers, trade costs, and the relative importance of exports, all play an important role. Results from a multi-region computable general equilibrium model substantiate the proposition that the initial pattern of asymmetry is relatively more important than scale and varietal effects, despite the fact that the latter have received more attention in the literature.

Global Applied General Equilibrium Analysis using the GTAP Framework

“…In a standard model of monopolistic competition, the only mechanism for generating changes in output per firm is through a divergence in fixed and variable costs. Indeed, the combination of entry/exit leading to zero profits, and the optimal markup condition in this model means that output per firm is proportional to the ratio of fixed to variable costs (Hertel and McCorriston, 1999). Now consider what happens in the face of trade liberalization.…”

Trade in Services: A Review

“…Studies based on the GTAP model are Hertel et al (1999), The Australian Department of Foreign Affairs and Trade (1999), Dee and Hanslow (2000), and Verikios and Zhang (2000). The two most commonly used CGE models are various versions of the Global Trade Analysis Project (GTAP) model and the Michigan Model of World Production and Trade.…”