Article ID Journal Published Year Pages File Type
965770 Journal of Macroeconomics 2015 16 Pages PDF
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.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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