Welfare Impact of Trade Liberalization

34 Pages Posted: 8 Jan 2009

See all articles by Sang-Wook (Stanley) Cho

Sang-Wook (Stanley) Cho

UNSW Australia Business School, School of Economics

Julian P. Diaz

University of Minnesota - Twin Cities - Department of Economics

Date Written: October 31, 2008

Abstract

This paper constructs a static Applied General Equilibrium Model and analyzes the distributional impact of trade reforms. To calibrate our model, we work with the Household Expenditure Survey to disaggregate household groups by income, age, and skill intensity, and the Input-Output table to construct a Social Accounting Matrix. Our benchmark simulation looks at Slovenia joining the European Union. We then compare with two alternative scenarios: a free trade agreement between Slovenia and the EU, and an alternative fiscal arrangement of distributing tariff revenues under the EU. While trade reforms lead to falling prices in the import sector, rising production in the export sector, and improvement in aggregate welfare, the distributional impacts across household groups vary in its degree.

Keywords: Trade Liberalization, Free Trade Agreement, Customs Union, Social Accounting Matrix, Household welfare

JEL Classification: D58, F14, F15

Suggested Citation

Cho, Sang-Wook and Diaz, Julian P., Welfare Impact of Trade Liberalization (October 31, 2008). UNSW Australian School of Business Research Paper No. 2008 ECON 20, Available at SSRN: https://ssrn.com/abstract=1323697 or http://dx.doi.org/10.2139/ssrn.1323697

Sang-Wook Cho (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Julian P. Diaz

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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