THE WELFARE IMPACT OF TRADE LIBERALIZATION |
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| Authors: | SANG‐WOOK CHO JULIAN P. DIAZ |
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| Affiliation: | 1. Cho: Lecturer, School of Economics, Australian School of Business, University of New South Wales, Sydney, 2052, NSW, Australia. Phone +61 (2) 9385‐3287, Fax +61 (2) 9313‐6337, E‐mail s.cho@unsw.edu.au;2. Díaz: Assistant Professor, Department of Economics, Bowdoin College, Brunswick, ME 04011. Phone 207‐798‐4333, Fax 207‐725‐3691, E‐mail jdiaz@bowdoin.edu |
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| Abstract: | ![]()
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) |
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