Modeling the Economic Impact of Trade Liberalization Comprised of Tariff and Non-Tariff Measures Under Cafta-Dr in Costa Rica
Abstract
According to theory, free trade and open markets bring about prosperity for both developed and developing member countries under free trade agreements. It has become commonplace among econometric modelers, seeking to determine the impact of trade reform, to construct general equilibrium models. However, in doing so, the existence and impact of Non-Tariff Measures (NTM) have been a consistently overlooked aspect of the domestic economic impact of systemic shocks to trade. This research addresses the impact of tariff and non-tariff measure reductions, agreed to under the Central American Free Trade Agreement (CAFTA-DR), on the household in Costa Rica since its inception. To this end, a modified Static Computable General Equilibrium (CGE) model for the economy of Costa Rica, with a base year of 2007, coupled with a point-in-time linear regression comparison for 2016, has been developed and considered. Following ECORYS 2006, Gruebler (2016) and Francois (2013), the reform measures will be trade tariff reductions simulated at the macro level with the CGE model in conjunction with a point-in-time review of the NTMs. This study concludes that with decreases in the price of traded commodities due to tariff elimination, consumer welfare increases, owing largely to increased consumer surplus and decreased producer rents and government revenues. This also bodes well for overall aggregate welfare as determined by equivalent variation analysis. With respect to non-tariff measure analysis, the results reveal significant additional welfare efficiency gains across factor and sector returns, in much the same direction as the original equivalent variation.
Subject Area
Economics|Management|Public policy|International Relations
Recommended Citation
McDonnaugh, Pierre N, "Modeling the Economic Impact of Trade Liberalization Comprised of Tariff and Non-Tariff Measures Under Cafta-Dr in Costa Rica" (2019). ETD Collection for Pace University. AAI28148233.
https://digitalcommons.pace.edu/dissertations/AAI28148233
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