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Journal Article

Trade Policy Options for Chile

TL;DR: The authors used a multisector, multicountry, computable general equilibrium model to examine Chile's strategy of "additive regionalism" to negotiate bilateral free trade agreements with all of its significant trading partners.
Abstract: This article uses a multisector, multicountry, computable general equilibrium model to examine Chile's strategy of "additive regionalism"--negotiating bilateral free trade agreements with all of its significant trading partners. Taking Chile's regional arrangements bilaterally, only its agreements with Northern partners provide sufficient market access to overcome trade diversion costs. Due to preferential market access, however, additive regionalism is likely to provide Chile with gains that are many multiples of the static welfare gains from unilateral free trade. At least one partner country loses from each of the regional agreements considered, and excluded countries as a group always lose. Gains to the world from global free trade are estimated to be vastly larger than gains from any of the regional arrangements.
Citations
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Journal ArticleDOI
TL;DR: The authors assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries and argues that there is no simple generalizable conclusion about the relationship between trade liberalization and poverty, and the picture is much less negative than is often suggested.
Abstract: This paper assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries. There is little empirical evidence addressing this question directly, but a lot of related evidence on specific aspects. We summarize this evidence using an analytic framework addressing four key areas: economic growth and stability; households and markets; wages and employment and government revenue. Twelve key questions are identified and empirical studies and results are discussed. We argue that there is no simple generalizable conclusion about the relationship between trade liberalization and poverty, and the picture is much less negative than is often suggested. In the long run and on average, trade liberalization is likely to be strongly poverty alleviating, and there is no convincing evidence that it will generally increase overall poverty or vulnerability. But there is evidence that the poor may be less well placed in the short run to protect themselves against adverse effects and take advantage of favorable opportunities.

1,045 citations

Journal ArticleDOI
TL;DR: In this paper, the efficiency of and the substitutability between three urban congestion management policies: transit subsidization, car congestion pricing, and dedicated bus lanes, were analyzed using data from London, UK and Santiago, Chile.
Abstract: This paper analyzes the efficiency of and the substitutability between three urban congestion management policies: transit subsidization, car congestion pricing, and dedicated bus lanes. The model features user heterogeneity, cross-congestion effects between cars and transit, intertemporal and total transport demand elasticities, and is simulated using data for London, UK and Santiago, Chile. We find that the substitutability between policies is large and, in particular, the marginal contribution of increased transit subsidies, as other policies are implemented first, diminishes rapidly. Bus lanes are an attractive way to increase frequencies and decrease fares without injecting public funds.

104 citations

BookDOI
TL;DR: This paper developed a 52 sector applied general equilibrium model of Tanzania with foreign direct investment, and used that model to assess Tanzania's regional and multilateral trade options, finding that a 50 percent preferential reduction in the ad valorem equivalents of barriers in all business services by Tanzania with respect to its African regional partners would be slightly beneficial for Tanzania.
Abstract: Despite the growing importance of commitments to foreign investors in services in regional trade agreements, there are no applied general equilibrium models in the literature that assess these regional impacts. This paper develops a 52 sector applied general equilibrium model of Tanzania with foreign direct investment, and uses that model to assess Tanzania's regional and multilateral trade options. The model incorporates the features of the modern theory of international trade that has shown empirically that trade and foreign direct investment can increase productivity, and trade and foreign direct investment with technologically advanced countries is especially valuable for that purpose. To assess the sensitivity of the results to parameter values, the model is executed 30,000 times, and the results are reported as confidence intervals of the sample distributions. The analysis finds that a 50 percent preferential reduction in the ad valorem equivalents of barriers in all business services by Tanzania with respect to its African regional partners would be slightly beneficial for Tanzania. But wider liberalization, with larger partners or multilaterally, it will yield much larger gains due to providing access to a much wider set of service providers. Finally, the results show that the largest gains in services would be derived from reduction of regulatory barriers that are geographically non-discriminatory.

18 citations

BookDOI
TL;DR: In this paper, the authors developed an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement with the European Union, as well as further regional or multilateral trade policy commitments.
Abstract: This paper develops an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement with the European Union, as well as further regional or multilateral trade policy commitments. The analysis finds that such an agreement with the European Union will likely result in substantial gains to Armenia, but shows that the gains derive from the deep aspects of the agreement. In order of importance, the sources of the gains are: (i) trade facilitation and reduction in border costs; (ii) services liberalization; and (iii) standards harmonization. A shallow agreement with the European Union that focuses only on preferential tariff liberalization in goods will likely lead to small losses to Armenia primarily due to a loss of productivity from lost varieties of technologies from the rest of the world region in manufactured products. Additional gains can be expected in the long run from an improvement in the investment climate. The authors estimate only small gains from a services agreement with countries of the Commonwealth of Independent States, but significant gains from expanding services liberalization multilaterally.

17 citations

Posted Content
TL;DR: In this article, a general equilibrium model of Kenya with monopolistic competition, foreign direct investment in services and Dixit-Stiglitz endogenous productivity effects was developed to assess preferential commitments by Kenya to foreign services providers.
Abstract: Despite the fact that many modern preferential trade agreements include commitments to foreign investors in services, the literature does not contain a modeling framework to analyze these commitments. In this paper we fill that void by developing a computable general equilibrium model of Kenya with monopolistic competition, foreign direct investment in services and Dixit-Stiglitz endogenous productivity effects. We use this model to assess preferential commitments by Kenya to foreign services providers. We show that there is an imperfect competition analogy to trade diversion in goods, whereby preferential commitments in services could be immizerising. Sensitivity analysis shows that losses are more likely the more technologically advanced are the excluded regions relative to the partner region, and, very importantly, the greater the rent capture on initial barriers in services. So an agreement with the technologically rich European Union is both worth more to Kenya and is more likely to be welfare increasing than an agreement with its less technologically rich African partners. From our systematic sensitivity analysis, in which the model is executed 30,000 times, and results are reported as confidence intervals of the sample distributions, we find that there is only a two percent chance that a services agreement with the Africa region would be immizerising for Kenya, but an agreement with the EU should produce gains with probability one.

17 citations

References
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Posted Content
TL;DR: In this paper, the authors use a political-economy framework that emphasizes the interaction between industry special interest groups and an incumbent government, and describe the economic conditions necessary for an FTA to be an equilibrium outcome.
Abstract: Suppose that an opportunity arises for two countries to negotiate a free trade agreement (FTA). Will an FTA between these countries be politically viable? And if so, what form will it take? We address these questions using a political-economy framework that emphasizes the interaction between industry special interest groups and an incumbent government. We describe the economic conditions necessary for an FTA to be an equilibrium outcome, both for the case when the agreement must cover all bilateral trade and when a few, politically sensitive sectors can be excluded from the agreement.

903 citations

ReportDOI
TL;DR: In this paper, the economic conditions necessary for an FTA to be an equilibrium outcome are discussed. But the authors focus on the case when the agreement must cover all bilateral trade and for the case where a few politically sensitive sectors can be excluded from the agreement.
Abstract: Suppose that an opportunity arises for two countries to negotiate a free-trade agreement (FTA). Will an FTA between these countries be politically viable?And if so, what form will it take? We address these questions using a political-economy framework that emphasizes the interaction between industry specialinterest groups and an incumbent govemment. We describe the economic conditions necessary for an FTA to be an equilibrium outcome, both for the case when the agreement must cover all bilateral trade and for the case when a few politically sensitive sectors can be excluded from the agreement. (JEL F13, F15, D78) Governments have been meeting frequently of late to discuss the possibility of their forming bilateral or regional trading arrangements. The United States;has concluded bilateral agreements with Israel, Canada, and Mexico and will pursue talks

827 citations

Journal ArticleDOI
TL;DR: An overview of the modelling environment is provided and three worked examples in tax policy analysis of the Mathematical Programming System for General Equilibrium analysis and the Generalized Algebraic Modelling System.
Abstract: This paper describes a programming environment for economic equilibrium analysis. The system introduces the Mathematical Programming System for General Equilibrium analysis (MPSGE, Rutherford 1987) within the Generalized Algebraic Modelling System (GAMS, Brooke, Kendrick and Meeraus (1988)). This arrangement exploits GAMS‘ set-oriented algebraic syntax for data manipulation and report writing. The system based on the tabular MPSGE input format provides a compact, non-algebraic representation of a model‘s nonlinear equations. This paper provides an overview of the modelling environment and three worked examples in tax policy analysis.

642 citations

Journal ArticleDOI
TL;DR: This paper shows how complementarity problems are modeled within the GAMS modeling language and provides details about the PATH solver, a generalization of Newton's method, for finding a solution.

425 citations


"Trade Policy Options for Chile" refers methods in this paper

  • ...The model is formulated using the GAMS-MPSGE software developed by Rutherford (1999) and solved using the PATH algorithm of Ferris and Munson (2000). Although the model has 11 regions and 24 sectors and is large by historical standards, it is smaller than our Uruguay Round model....

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Journal ArticleDOI
TL;DR: In this paper, the authors show that a policy which reduces all price distortions uniformly will improve the welfare of the economy, if it is stable in the Marshallian sense, and if the good with the highest distortion is substitutable for all the other goods and the economy is stable under the AIM, if the aggregate of income terms weighted by marginal costs (AIM) is positive.
Abstract: The theory of the second best, first formally presented by Lipsey and Lancaster [16], maintains that the abolition of an arbitrarily chosen distortion in an economy with multiple distortions may reduce the welfare of the economy The main objective of the present paper is to formulate some piecemeal policy recommendations which would definitely result in a move towards efficiency In particular, we will prove the following: (a) a policy which reduces all price distortions uniformly will improve the welfare of the economy, if it is stable in the Marshallian sense (b) a policy which brings the highest distortion to the level of the next highest will improve the welfare of the economy, if the good with the highest distortion is substitutable for all the other goods and if the economy is stable in the Marshallian sense Our results integrate the characterization of the second best solution by Green [9], the analysis of the uniform reduction of tariff and excise tax by Foster and Sonnenschein [8] and Bruno [4], and the demonstration by Kemp [15] that the welfare effect of the tariff reduction in the two commodity world is related to the stability of the economy In the present paper, an extensive use of the compensated demand function enables us to reveal the underlying relationship among these seemingly unrelated works' In Section 2, we will define the compensated demand function, and will present its properties used in this paper The model will be presented in Section 3 In Section 4 we will establish that in an economy with constant-cost technology a uniform reduction in excise tax rates improves welfare provided that the aggregate of income terms weighted by marginal costs (AIM) is positive We will also show that a reduction of the highest tax rate to the level of the next highest rate improves the welfare if the AIM is positive and if the good with the highest tax rate is substitutable for all other goods In Section 5 the main theorems will be proved by establishing that the positivity of AIM in the propositions of Section 4 can be replaced by another condition if the economy is stable under the Marshallian adjustment mechanism (which is defined in the text) Section 6 will re-evaluate the theory of the second best from our framework (This section can be read independently of Section 5) Throughout this paper, a matrix will be denoted by an upper-case letter; a lower-case bold-faced letter will represent a column vector; its transpose will be shown by a prime; and the ith element of the vector is denoted by the same letter with subscript i, unless stated otherwise

210 citations