Economic Research and Perspectives

Economic Research and Perspectives

The Impact of Trade Liberalization on Welfare of Trade Partners Using GTAP Model (Case Study: Iran)

Author
Abdollah Mahmoodi
Assistant Professor of International Economics, Department of Management, Mahabad Islamic Azad University (MIAU), Mahabad, Iran, (E-mail: Mahmoodi_a2000@yahoo.com)
Abstract
The impact of trade liberalization on welfare of trade partners has been the subject of various economic studies, but components of welfare and their decomposition is considered by this study. The study of Huff and Hertel (2000) and the global trade analysis project constitute the theoretical basics of this research. First, by using the graphical approach, the distortion in labor market is investigated within a closed economy with two producing sectors. Than by using a mathematical approach, welfare effects will be decomposed using single and multi regions models. It is shown that various components affect welfare changes resulting from policy shocks. The effects of reduction in tariffs of imported agriculture commodities from Iran to WTO are examined. The results show that the Iran’s welfare rises because of positive contribution of allocative efficiency, terms of trade and tariff revenues. The changes in aggregate labor demand, investment and technology progress are the important elements in welfare changes due to trade policy, but in static models such as GTAP, these components are fixed, however the theoretical analysis shows that they may lead to welfare.
Keywords
Trade Liberalization
Welfare Decomposition
Equivalent Variation
Efficient Allocation
Terms of Trade
Tax Distortion
GTAP
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Economic Research and Perspectives
Volume 14, Issue 1
Spring 2014
Pages 127-150