Predicting Trade Expansion under FTAs and Multilateral Agreements

Dean DeRosa and John Gilbert
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Dean DeRosa: ADR International Ltd.

No WP05-13, Working Paper Series from Peterson Institute for International Economics

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 comput-able 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 “naïve” gravity model and “naïve” 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 (search for similar items in EconPapers)
JEL-codes: C68 F13 F17 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (15)

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