GLOBAL SUBSIDIES INITIATIVE
Subsidy WatchIssue 2, July 2006
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Modeling the Gains from Trade Liberalization
In the early years of this decade, as the World Trade Organization's "Doha Round" of multilateral trade negotiations began to take shape, simulations carried out by the World Bank suggested that the world economy would be as much as $800 billion richer with an ambitious and successful trade round, and that approximately two-thirds of these gains would be appropriated by developing countries.
The picture presented by the models today is very different.
Also in this issue:
Analysis
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Do Trade Models Answer Policymakers' Questions?
By Frank Ackerman, Director of the Research and Policy Program at the Global Development and the Environment Institute at Tufts University
Massive "computable general equilibrium" (CGE) models, estimating the global benefits of trade liberalization, have become increasingly common fixtures in recent trade negotiations. The models routinely find that the world as a whole would benefit from full liberalization, although the numbers have been rapidly shrinking of late, and there are losers as well as winners in many scenarios.
Do these models actually answer the questions that policymakers are asking?
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More on Modeling: Why the results have changed
International Food Policy Research Institute: Opening the Black Box
Commentary
Studies
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Modeling Global Trade Reforms: What Can it Tell Us?
By Will Martin, Lead Economist in the World Bank's Trade and Development Research Group
Global trade agreements are complex and multi-faceted. To capture their effects requires a model that includes all production, consumption and trade in the world; distinguishes different regions; and captures the effects of different forms of protection-both tariff and nontariff measures-many of which are designed specifically to obfuscate their effects.
Despite these challenges, global models can be enormously useful.
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