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Second‐Best Linkages and the Gains from Global Reform of Manufactures Trade
Author(s) -
Hertel Thomas W.,
Martin Will
Publication year - 2001
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00275
Subject(s) - economics , tariff , international economics , order (exchange) , negotiation , free trade , international trade , general equilibrium theory , agriculture , liberalization , multilateral trade negotiations , macroeconomics , market economy , ecology , finance , biology , political science , law
The Uruguay Round’s built‐in agenda for future WTO negotiations omitted further liberalization in manufactures, yet this paper shows that there are large potential gains to be had from such tariff cuts, especially in the developing countries. In order to fully estimate the benefits of adding industrial products to a future multilateral trade round, we need to take into account the levels of protection in other sectors—most notably agriculture and services—in which many trade flows are highly distorted. This paper examines the nature of the second‐best linkages among sectors using a balance‐of‐trade function approach. The importance of these linkages is evaluated using a numerical general equilibrium model. It is found that, in most cases, the second‐best spillovers do not greatly affect the results, implying that the estimated gains from manufacturing reforms will be largely independent of their sequencing. However, in a few regions, most notably the EU, the second‐best effects play a significant role.