Predicting Trade Expansion Under Ftas and Multilateral Agreements

50 Pages Posted: 3 Nov 2005

See all articles by Dean A. DeRosa

Dean A. DeRosa

ADR International, Ltd.

John Gilbert

Utah State University - College of Business - Department of Economics

Date Written: October 2005

Abstract

This paper examines the historical record of eight recent free trade agreements (FTAs). It also investigates the predictive power of two popular quantitative world trade models-the single-equation gravity model and the multiequation computable general equilibrium (CGE) model-as applied to three major trade liberalization agreements adopted during the 1990s: Mercosur, NAFTA, and the Uruguay Round Agreement, using the Rose gravity model and the GTAP general equilibrium model. Both models are found accurate in some instances, but intervening influences in the wake of trade liberalization episodes confound the challenge of drawing a strong conclusion in favor of one modeling approach over the other. Between the "naive" gravity model and "naive" CGE model predictions, we find that the former tends to overpredict intrabloc trade expansion (especially over horizons of five years and less) while the latter tends to underpredict. CGE models remain favored for ex post analysis of welfare impacts and the direct and indirect linkages between policy reforms and the numerous other economic variables of concern to policymakers and the public at large.

Keywords: Gravity models, CGE models, regional trading arrangements

JEL Classification: C68, F13, F17

Suggested Citation

DeRosa, Dean A. and Gilbert, John, Predicting Trade Expansion Under Ftas and Multilateral Agreements (October 2005). Institute for International Economics Working Paper No. 05-13. Available at SSRN: https://ssrn.com/abstract=835666 or http://dx.doi.org/10.2139/ssrn.835666

Dean A. DeRosa (Contact Author)

ADR International, Ltd. ( email )

2115 North Hollister Street
Arlington, VA 22205
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HOME PAGE: http://www.adr-intl.com

John Gilbert

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States
435-797-2314 (Phone)
435-797-2701 (Fax)

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