Improving the Analysis of Trade Policy

Federal Reserve Bank of Minneapolis Economic Policy Paper, 18-1, January 2018.

6 Pages Posted: 20 Jun 2023

See all articles by Timothy Kehoe

Timothy Kehoe

University of Minnesota - Minneapolis

Pau Pujolas

McMaster University

Jack Rossbach

Georgetown University, School of Foreign Service in Qatar

Date Written: June 8, 2023

Abstract

The standard model that economists use to analyze the impact of trade reforms systematically underpredicts changes in trade patterns. It not only underestimates overall trade magnitudes, but also fails to predict which industries experience the largest trade increases. This failure results from not accounting for rapid growth in post-liberalization trade of the products that these industries produce.

This paper documents these weaknesses and demonstrates an alternative methodology.
Our modified model performs better because it accounts for the rapid growth of trade in products that were traded in small quantities prior to the reduction of trade barriers.

We offer a method for integrating this insight about least-traded products into the standard model and suggest that such models not only will produce more accurate predictions, but also will forecast larger welfare gains from trade liberalization.

Suggested Citation

Kehoe, Timothy and Pujolas, Pau and Rossbach, Jack, Improving the Analysis of Trade Policy (June 8, 2023). Federal Reserve Bank of Minneapolis Economic Policy Paper, 18-1, January 2018., Available at SSRN: https://ssrn.com/abstract=4473403

Timothy Kehoe

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Pau Pujolas (Contact Author)

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Jack Rossbach

Georgetown University, School of Foreign Service in Qatar ( email )

Education City
Al Huqoul St
Doha
Qatar

HOME PAGE: http://rossbach.georgetown.domains

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