Terms of trade and global efficiency effects of free trade agreements
Abstract
This paper infers the terms of trade effects of Free Trade Agreements (FTAs) implemented in the 1990s. We estimate large FTA effects on bilateral trade volume in 2 digit manufacturing goods from 1990-2002, using panel data methods to resolve two way causality in the gravity model. The terms of trade changes implied by these volume effects are deduced for 40 countries plus a rest-of-the-world aggregate using an endowments general equilibrium model. Some countries gain over 10% of real manufacturing income, some lose less than 0.2%. Global efficiency of manufactures trade rises 0.62% based on a new distance function measure of iceberg melting.
Link
http://sites.udel.edu/econseminar/files/2013/09/FTAgravity_Yotov1.pdf