Quantifying the Economic Welfare Gains and Losses for Developed and Developing Economies in a World with Heterogeneous Economic Integration Agreements

Faculty Research Grant
Grant Year

International trade economists have argued for two centuries in favor of the benefits to countries' economic welfare (i.e., standard of living) from international trade, for most of the period theoretically. Recent developments in the New Quantitative Trade (NQT) models have made quantification of the economic gains and losses more transparent (both for the average-income worker as well as across income groups) and are based upon recent advances in theoretical foundations. While the last 75 years have witnessed extensive trade liberalizations among developed countries, the last 30 years have witnessed increased numbers of economic integration agreements both between developed and developing countries as well as between developing countries (e.g., the African Continental Free Trade Agreement).

This proposal addresses quantification of partial trade effects and economic gains and losses of EIAs in a world with heterogeneous trading partners (e.g., levels of development) and heterogeneous EIAs. In one paper, we introduce a novel quantile regression approach to estimate the partial effects of EIAs across the distribution of bilateral trade flows, investigating whether developing countries – and whether trade in the “least-traded goods” – benefit more from EIAs. In a second paper, we introduce three-way fixed effects into an expectile regression to examine conditional mean effects across the distribution of trade. In a third paper, we examine the effects of individual provisions of deep trade agreements on multinational firms’ revenues, costs, and productivity, examining developed-developed, developed-developing, and developing-developing countries’ variables, from which we will quantify welfare gains and losses.