Computable General Equilibrium Estimates of the Gains from US-Canadian Trade Liberalization (original) (raw)
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Accounting for the New Gains from Trade Liberalization
2016
We measure the "new" gains from trade reaped by Canada as a result of the Canada-US Free Trade Agreement (CUSFTA). We think of the "new" gains from trade of a country as all welfare e¤ects pertaining to changes in the set of …rms serving that country as emphasized in the so-called "new" trade literature. To this end, we …rst develop an exact decomposition of the gains from trade which separates "traditional" and "new" gains. We then apply this decomposition using Canadian and US micro data and …nd that the "new" welfare e¤ects of CUSFTA on Canada were negative.
Economic modeling of the Canada-U.S. free trade agreement: Introduction
Journal of Policy Modeling, 1991
Economic models played an important role in the debate within Canada on the advantages and disadvantages of a "free-trade treaty" with the United States. The following two articles represent different styles of modeling methodology that attempt to provide a perspective on the issues pertinent to discussions of trade liberalization as it impacts on a smaller open economy such as Canada's. The major economic issues highlighted by the debate included (a) the long-term productivity and efficiency effects of trade liberalization of both import and export markets, (b) the sectoral and distributional impact of the liberalization, specifically in terms of sectoral changes in employment and the gains and losses to factors of production in certain sectors of the economy, and (c) the transitional impacts of the agreement in terms of its effect on macroeconomic aggregates, unemployment, inflation, and exchange rates. Currently there are no large-scale empirical models capable of answering all these questions. Macroeconomic forecasting models are the traditional means of dealing with economic aggregates within a time frame focusing on yearly or quarterly periods extending over a 2-to lo-year horizon. General equilibrium models have become the standard tool for addressing microeconomic questions, although these models are notably weak on dealing with issues of investment, expectations, asset market equilibrium, and unemployment. The free-trade debate within Canada forced modelers in both traditions, however, to move part way to accommodating the concerns addressed by the "alternative" type of model. Macro modelers had to deal with the central question of how growth and productivity changes induced by changes in the factor and industrial composition of itional aggregates, both inputs and outputs, would impact on predictions about economic growth and zmp!oyment. General equilibrium modelers had to accommodate short-run unemployment effects, expectations in investment decisions, and some other elements of realtime dynamics to make their analyses acceptably relevant to the concerns of the economic policy community. Clearly, making these accommodations produces greater realism at the cost of introducing some ad hoc elements of model structure into the underlying economic theory. The two articles in this symposium report on the application of some veil-known Canadian policy models to some of the issues raised by the concerns of the free-trade The first versions of these papers were both presented at the Conference on "Challenges for the 1990's" (University of Toronto, Policy and Economic Analysis Program).
On Estimating The Welfare Gains from Trade Liberalization
2000
Estimating general equilibrium price feed- backs is notoriously difficult. This has deterred most researchers from econometrically estimating the welfare gains from trade liberalization. Using a CES monopolistic competition example, we show that this difficulty has been greatly exaggerated. The paper achieves three goals. First, we provide dynam- ically consistent, general equilibrium estimates of elasticit- ies of substitution. Second, with the
The World Economy, 2019
Three years ago, very few economists would have imagined that one of the newest and fastest growing research areas in international trade is the use of quantitative trade models to estimate the economic welfare losses from dissolutions of major countries' economic integration agreements (EIAs). In 2016, "Brexit" was passed in a United Kingdom referendum. Moreover, in 2019, the existence of the entire North American Free Trade Agreement (NAFTA) is at risk if the United States withdraws-a threat President Trump has made if the proposed United States-Mexico-Canada Agreement is not passed by the U.S. Congress. We use state-of-the-art econometric methodology to estimate the partial (average treatment) effects on international trade flows of the six major types of EIAs. Armed with precise estimates of the average treatment effect for a free trade agreement, we examine the general equilibrium trade and welfare effects of the elimination of NAFTA (and for robustness U.S. withdrawal only). Although all the member countries' standards of living fall, surprisingly the smallest economy, Mexico, is not the biggest loser; Canada is the biggest loser. Canada's welfare (per capita income) loss of 2.11 percent is nearly two times that of Mexico's loss of 1.15 percent and is nearly eight times the United States' loss of 0.27 percent. The simulations will illustrate the important influence of trade costs-international and intranational-in contributing to the gains (or losses) from an economic integration agreement's formation (or elimination).
This study evaluates the impacts of the Uruguay Round Agreement (URA) on Canadian agriculture in a single-country general equilibrium framework. For this purpose a computable general equilibrium model of the Canadian economy that involves six agricultural and two non-agricultural sectors was constructed and calibrated on 1991 data. To assess whether Canadian agriculture benefits from the URA, two sets of anticipated changes in world prices, taken from studies of the global effects of the URA, were introduced into the model exogenously. The simulation experiments show that the minimum increases in world prices from global studies are too small to offset the negative effects on agriculture of the reductions in tariffs, export subsidies and domestic support. However, if world prices were to change by the maximum level of global projections, Canadian agricultural producers gain from the URA. The sectors that benefit the most are wheat, other grains, and processed foods, for which produc...
1989
Canada and the United States have implemented legislation to form a free trade area in the classic sense. The Canada America Free Trade Agreement, or CAFTA, is to be phased in over a ten year period which began on January 1, 1989. There are many elements to the agreement, but the most significant is the phased in reduction of tariffs on bilateral trade over a ten year period, plus removal of some significant non-tariff barriers. In addition the agreement sets out a new mechanism for resolving trade disputes involving the application of countervail and anti-dumping laws in both countries. This paper reports some estimates of the transition effect of the agreement using a sequenced general equilibrium model incorporating imperfect competition, scale economies and some labour market rigidities. Entry and exit dynamics are explicitly incorporated in the model simulations. Besides offering what we think are illuminating analyses of the agreement itself, the results in comparison to the s...
The Long and Short of the Canada-U.S. Free Trade Agreement
American Economic Review, 2004
The Canada-U.S. Free Trade Agreement (FTA) provides a unique window onto the effects of a reciprocal trade agreement on an industrialized economy (Canada). For industries that experienced the deepest Canadian tariff cuts, employment fell by 12 percent and labour productivity rose by 15 percent as low-productivity plants contracted. For industries that received the largest U.S. tariff cuts, there were no employment gains, but plant-level labour productivity soared by 14 percent. These results highlight the conflict between those who bore the short-run adjustment costs (displaced workers and struggling plants) and those who are garnering the long-run gains (consumers and efficient plants). Finally, a simple welfare analysis provides evidence of aggregate welfare gains.
Global Gains from Trade Liberalization
SSRN Electronic Journal, 2012
What has been the overall global welfare impact of the accession to the World Trade Organization of a large country like China, or the global welfare impact of the completion of the Uruguay round of GATT negotiations? Can we come up with a simple user-friendly formula to calculate the global welfare impact of the simultaneous trade liberalization of a number of countries? How sensitive is the answer to the assumption of the trade model? We find a striking answer to these questions. We find that, for a very broad class of models and settings, the global welfare impact of trade liberalization in a country, or a simultaneous liberalization of a number of countries, is given by the same simple formula. We find that the global welfare impact of the simultaneous trade liberalization of different countries only depends on two sets of statistics: (i) the ratio of the value of bilateral trade between each and every pair of trading partners and global income; and (ii) the change in exporting cost for each and every pair of trading partners. Most interestingly, the formula applies to a very broad class of models and settings, which include the general Ricardian model (including, for example, Anderson, 1979, and Eaton and Kortum, 2002), the models of Krugman (1980), Melitz (2003) and its extensions, and the extensions of these models to the multi-sectoral case, multi-factor production technology, multi-stage production, the existence of tradable intermediate goods and the existence of a large outside good sector in each country. We find that global welfare would have been 0.05% lower in the year 2008 if China had not gained accession to the WTO in 2001.