Value of WTO trade agreements in a New Keynesian model

Giovanni Ganelli and Juha Tervala

Journal of Macroeconomics, 2015, vol. 45, issue C, 347-362

Abstract: We revisit the question of the quantitative benefits of WTO trade agreements in a setup that is non-standard from the traditional trade policy point of view. We show that in a New Keynesian model, unilateral trade liberalization reduces welfare due to terms-of-trade deterioration, creating an incentive for a trade agreement. For realistic parameter values, the value of an agreement, which cuts tariffs by one percentage point, is 0.5–2% of consumption, much larger than in trade models. The intuition for this result hinges on endogenous labor supply.

Keywords: Tariffs; Terms of trade theory; Trade agreement; Trade liberalization; WTO (search for similar items in EconPapers)
JEL-codes: E60 F13 F41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070415000749
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Value of WTO Trade Agreements in a New Keynesian Model (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:45:y:2015:i:c:p:347-362

DOI: 10.1016/j.jmacro.2015.06.001

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().