Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
965770 | Journal of Macroeconomics | 2015 | 16 Pages |
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
Authors
Giovanni Ganelli, Juha Tervala,