Computational Analysis of the US FTAs with Central America, Australia and Morocco

World Economy (Impact Factor: 0.69). 09/2005; 28(10):1441 - 1490. DOI: 10.1111/j.1467-9701.2005.00743.x
Source: RePEc


We use the Michigan Model of World Production and Trade to assess the economic effects of the US bilateral FTAs negotiated with Central America, Australia and Morocco. The model covers 18 economic sectors in each of 22 countries/regions and is based on version 5.4 of the GTAP database for 1997 together with specially constructed estimates of services barriers and other data on sectoral employment and numbers of firms. The distinguishing feature of the model is that it incorporates imperfect competition in the manufacturing and services sectors, including monopolistic competition, increasing returns and product variety. The modelling focus is on the effects of the bilateral removal of tariffs on agriculture and manufactures and services barriers. Rules of origin and other restrictive measures and the non-trade aspects of the FTAs are not taken into account due to data constraints. The computational results indicate that the benefits of bilateral FTAs for the United States and partner countries are rather small in both absolute and relative terms, and that far greater benefits could be realised if the United States and its FTA partners adopted unilateral free trade and especially if multilateral free trade was adopted by all countries/regions in the global trading system.

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    • "A further disadvantage of a CGE approach is that the results are highly sensitive to particular methodological assumptions. For example, the U.S. ITC study of the Central American-Dominican Free Trade Agreement Republic (CAFTA-DR) free trade agreement suggested an increase in U.S. welfare of as much as $248 million (USITC 2004c) while a Michigan model estimated an increase of $17.3 billion (Brown, et al., 2005). Beyond modeling differences (such as the treatment of services), the "
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