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THE WELFARE IMPACT OF TRADE LIBERALIZATION
Author(s) -
CHO SANGWOOK STANLEY,
DIAZ JULIAN P.
Publication year - 2011
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2010.00296.x
Subject(s) - economics , social accounting matrix , welfare , tariff , international economics , free trade , liberalization , revenue , general equilibrium theory , production (economics) , computable general equilibrium , macroeconomics , market economy , accounting
This paper analyzes the distributional welfare impact of trade liberalization reforms on heterogeneous households. We develop a static applied general equilibrium model, and using a Social Accounting Matrix and Household Expenditure Survey, we calibrate it to match Slovenian data. We simulate the case of Slovenia joining the EU and quantify its welfare impact on households that differ in terms of age, income, and education. Additionally, we compare this benchmark case with two alternative scenarios: (1) a free trade agreement between Slovenia and the EU and (2) a custom union arrangement where tariff revenues are rebated proportionally to the households. We find that while trade liberalization leads to falling consumer prices, increased production in the export sectors, and aggregate welfare gains, the differentiated welfare impacts across heterogeneous households vary in their degrees. ( JEL D58, F14, F15)