Potential for Trade between Developing and Least Developed Countries: A CGE Analysis

Abstract

This study investigates the potential trade flows between developing (DCs) and least developed countries (LDCs) as a result of tariff liberalization using a computable general equilibrium model called the GTAP-model. Both unilateral and bilateral tariff liberalization has been examined and compared on certain key variables such as welfare, employment, exports, imports and output. Results reveal positive effects for both country groups without significant negative effect on developed countries. Results also indicate that tariff reduction will be welfare enhancing for both LDCs and DCs with net positive effect on global welfare. While the present exercise is illustrative, it nevertheless reveals useful implications and emphasizes on reorientation of trade policies in LDCs and DCs towards greater cooperation to optimize gains from trade.

Keywords: South-South Trade, Computable General Equilibrium, GTAP, Simulation Scenarios, Simulation Outcomes

JEL Classification: F1, F15, F17, C68