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We construct a 45-sector model of Ukraine with Turkey and six other regions to estimate the impacts on Ukraine of deep integration with Turkey in their potential Free Trade Agreement (FTA). Our central model contains foreign direct investment (FDI) in business services with endogenous productivity effects from additional varieties of goods or services in imperfectly competitive sectors. We model deep integration to include reduction of: (i) barriers against FDI in business services; (ii) non-tariff barriers in goods; and (iii) time in trade costs. We innovatively estimate the ad valorem equivalents of the three types of deep integration instruments we model, and we construct an 85-sector input-output table of Ukraine. We estimate that this FTA will increase welfare in Ukraine by 2.72 percent, with the deep integration aspects responsible for about 56 percent of the gains; but preferential tariff reduction by Ukraine alone contributes less than one percent of the gains. We show including these deep integration features and imperfect competition produce estimated gains 3.5 times larger than a model of perfect competition focusing on only a narrow agreement limited to tariff elimination. We estimate that a reduction of non-discriminatory barriers against both FDI and Ukrainian investment in business services would add an additional 2.0 percent of real household income to the estimated gains.

This paper estimates the impacts on The Philippines of deep integration in a modern mega-preferential trade agreement, the Regional Comprehensive Economic Partnership. The paper assesses how the results differ with three versions of market structure: (i) perfect competition, Armington style; (ii) monopolistic competition Krugman style; and heterogeneous firms, Melitz style. The paper develops a new numerical model of foreign direct investment with heterogeneous firms where firms produce in the host country and demand corresponds to the “proximity burden,” and is the first to apply a heterogeneous-firms model of foreign direct investment to preferential trade analysis. It also develops an extension of the Krugman model that allows small countries to impact the number of varieties. Both of these model extensions, as well as market structure, are crucial to the results. The trade and foreign direct investment responses are held constant across the three market structures. Lowering trade costs is examined from: (i) the reducing non-tariff barriers in goods; (ii) lowering barriers against foreign services providers, from foreign direct investment and cross-border; and (ii) facilitating trade. The results show that in all three market structures, there are substantial gains from deep integration, but virtually no gains from preferential tariff reduction. Both Krugman and Melitz style models produce significantly larger welfare gains than the Armington structure, especially in the impacts of foreign direct investment or with wider spillover effects on non- Regional Comprehensive Economic Partnership regions. The relationship between the welfare gains in the Krugman versus Melitz models is complex.

What are the potential gains to the members of the Eurasian Economic Union (EAEU) of successful deep integration through the reduction of time in trade costs, the reduction of non-tariff barriers i...

We examine regional and unilateral policies to reduce three kinds of trade costs in Eastern and Southern Africa. Our article is the first CGE-microsimulation model to assess the impacts of the reduction of trade costs on poverty and income of the poorest 40% of the population. We estimate significant reductions in the poverty headcount and increases in income for the poorest 40%. We find that trade facilitation would increase the ‘share’ of income of the poorest 40% of the population, however, services reform decreases the share. We find and explain why our three types of trade costs have very diverse impacts across the countries.

The accession negotiations of Belarus to the WTO are unusual since, due to its obligations in the Eurasian Economic Union, WTO accession is not expected to impact its tariffs or formerly substantial trade-distorting agricultural subsidies. Nonetheless, we estimate that WTO accession will increase welfare by 9.9% of consumption in Belarus. We show that inclusion of: (i) foreign direct investment; (ii) reduction in non-discriminatory barriers against services providers; and (iii) our model with imperfect competition and endogenous productivity effects together produce estimated gains eleven times larger than a model of perfect competition with only cross-border trade in services. Our analysis is enabled by our production of a data set on both discriminatory and non-discriminatory barriers in services and their ad valorem equivalents. Based on a new data set on labour productivity by sector and type of ownership, in our central model, we estimate that privatisation will increase welfare by 35.8% of consumption. We find substantial variance in the estimated gains from privatisation depending on model assumptions, but all the estimates of the impacts of privatisation indicate substantial welfare gains.

We provide detailed textbook style mathematical derivations of an extended version of the heterogenous firms model of Melitz (2003), as well as the Armington (1969) and Krugman (1980) models. Our model of heterogeneous firms extends the model of Melitz (2003) by allowing multiple sectors, intermediates, heterogeneous regions based on data, labor-leisure choice, initial heterogeneous tariffs as well as iceberg trade costs, multiple factors of production and the possibility of sector-specific inputs. Balistreri and Tarr (2019) apply these models to data where they assess the relative welfare impacts of trade cost reductions. We hope this will be a clear roadmap for understanding and constructing modern multi-sector, multi-region international trade models that must be fitted to data.

How large are the estimated gains from trade from a reduction in trade costs in the heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K) models? Surprisingly little is known beyond the one-sector model. This paper analyzes this question using a global trade model that contains ten regions and various numbers of sectors (1-10). Following Arkolakis et al. (2012), the analysis holds the local trade response constant across the model comparisons based on a structural gravity estimate. Various model features and scenarios are introduced that are important to real economies, almost none of which has been examined across the three market structures with a constant trade response. In response to global reductions in iceberg trade costs, in all the multi-sector models, the ranking of global welfare gains is Melitz > Krugman > Armington; and the Krugman model captures between 75 and 95 percent on the additional gains above the Armington model that are estimated by the Melitz model. However, for individual regions, there are numerous cases of reversed welfare rankings. i.e., Melitz Krugman > Armington. For individual regions, however, the welfare ranking of the Armington, Krugman and Melitz market structures is model, data, parameter and scenario dependent. The results highlight the need for data and structural considerations in policy analysis.

Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan formed the Eurasian Economic Union (EAEU) in order to create a single market. Armenia, Kyrgyzstan, and Kazakhstan all approximately doubled their average external tariffs, which were the Russian tariff, resulting in substantial transfers to Russia. Estimates show, however, that substantial progress in trade facilitation and reducing nontariff barriers could make the EAEU positive for all members. Moreover, the right to work for migrants or security arrangements with Russia may be the dominant issue for Armenia and the Kyrgyz Republic. So far, however, the EAEU has made little progress on reducing nontariff barriers or trade facilitation.

A new database on the barriers faced by foreign suppliers of services has been produced by the World Bank. Data for 103 countries are available on 11 of the most important services sectors in international trade. Based on these data and building on the methodology and publications supported by the Australian Productivity Commission, this paper produces estimates of the ad valorem equivalents of the barriers for all these sectors and countries. Compared with estimates available in the literature that are based on assessments of country- and sector-specific barriers to services providers, the estimates expand the set of sectors and more than triple the set of countries for which estimates of the ad valorem equivalents of the services barriers are available.

We investigate the environmental impacts of Russia's World Trade Organization (WTO) accession with a computable general equilibrium model incorporating imperfectly competitive firms, foreign direct investment and endogenous productivity. WTO accession increases CO2 emissions through technique (−), composition (+) and scale (+) effects. We consider three complementary policies to limit CO2 emissions: cap and trade, emission intensity standards and energy efficiency standards. With imperfectly competitive firms, gains from WTO accession result with any of these policies. If we assume perfectly competitive market structures, the negative environmental impacts of WTO accession are smaller and no net gains arise when environmental regulation involves energy intensity or efficiency standards.

We assess deep integration in the Eurasian Economic Union (EAEU) through the reduction of time in trade costs, the reduction of non-tariff barriers in goods and the liberalization of barriers against foreign suppliers of services. We develop an innovative multi-region model of trade and FDI for preferential trade analysis where we incorporate Dixit-Stiglitz endogenous productivity effects from trade and FDI liberalization. This model produces important differences compared with a perfect competition model. We build on numerous surveys and econometric estimates of the trade and FDI barriers in our focus countries that we helped develop. We show that if the EAEU effectively implements its objectives for trade cost reduction, it would lead to significant welfare gains of between 0.8 to 4.8 percent of consumption, depending on the country. If these deep integration measures are extended to third countries, either by a wider liberalization effort or by spillovers, then the estimated welfare gains increase between 2.5 and 4.5 times for Belarus, Kazakhstan and the Russian Federation. Using the neoclassical model of labor migration, we estimate that the right to legally work in the Russian Federation is approximately of equal value to Armenia as the combined aspects of the reduction of trade costs, including FDI liberalization. Our estimates show that all the spillovers are beneficial to all the EAEU countries. But, we identify the different reforms and the different external region that are most important for each member country regarding spillovers, which may inform lobbying positions of the member governments.

How large are the estimated welfare gains from changes in trade costs in a Melitz based trade model compared with models based on Armington and Krugman? We examine model features and scenarios that are important for policy that are unexamined in the literature. Starting with the stylized model of Akolakis et al. (2012), we produce fourteen new results by progressively introducing model structures and scenarios that are relevant to international trade policy analysis. We show that there are policies or model features that result in global welfare gains in the monopolistic competition models that are several multiples of the Armington model results and one relevant policy that leads to opposite signs; on the other hand, we identify other extensions of model features that have very small impacts. In multi-sector, comparative static models, we are the first to compare the welfare impacts of market structure, while holding the trade responses constant based on structural gravity estimates. In response to global changes in trade costs, in all models except a stylized one-sector model, the global welfare changes are largest in absolute value in Melitz and smallest in Armington; and the Krugman model captures between 75 and 95 percent of the additional gains (losses) above the Armington model that are estimated by the Melitz model. We construct parameters that facilitate intuitive explanations of the general pattern of results and for reversed welfare rankings that occur for individual regions.

In this paper we use ten-digit trade data that allow an accurate assessment of how the tariff structure of the Russian Federation will change as a result of the phased implementation of its World Trade Organization (WTO) commitments between 2012 and 2020 and how it has changed as a result of Russia's agreement to participate in a customs union with Kazakhstan and Belarus. WTO commitments will progressively and significantly lower the applied tariffs of the Russian Federation. Russian tariffs will ultimately fall to between 45 and 68 percent of their pre-accession levels, with the larger fall being on a weighted average, rather than an unweighted average basis. Nonetheless, bound tariffs will exceed applied tariffs for almost 1,500 tariff lines. Russia's commitments are not unusual, especially when compared to the transition countries that have acceded to the WTO.

The accession negotiations of Belarus to the WTO are unusual since, due to its obligations in the Eurasian Economic Union, WTO accession is not expected to impact its tariffs or formerly substantial trade distorting agricultural subsidies. Nonetheless, we estimate that WTO accession will increase welfare by 8.8 percent in Belarus. We show that inclusion of (i) foreign direct investment; (ii) reduction on non-discriminatory barriers against services providers; and (iii) our model with imperfect competition and endogenous productivity effects together produce estimated gains eleven times larger than a model of perfect competition with only cross-border trade in services. Our analysis is enabled by our production of a dataset on both discriminatory and non-discriminatory barriers in services and their ad valorem equivalents. Based on a new dataset on labor productivity by sector and type of ownership, in our central model we estimate that privatization will increase welfare by 35.4 percent. We find substantial variance in the estimated gains from privatization depending on model assumptions; but all the estimates of the impacts of privatization indicate substantial welfare gains.

Evidence indicates that trade costs are a much more substantial barrier to trade than tariffs are, especially in Sub-Saharan Africa. This paper decomposes trade costs into: (i) trade facilitation, (ii) non-tariff barriers, and (iii) the costs of business services. The paper assesses the poverty and shared prosperity impacts of deep integration to reduce these three types of trade costs in: (i) the East African Customs Union–Common Market of East and Southern Africa–South African Development Community "Tripartite" Free Trade Area; (ii) within the East African Customs Union; and (iii) unilaterally by the East African Customs Union. The analysis employs an innovative, multi-region computable general equilibrium model to estimate the changes in the macroeconomic variables that impact poverty and shared prosperity. The model estimates are used in the Global Income Distribution Dynamics microsimulation model to obtain assessments of the changes in the poverty headcount and shared prosperity for each of the simulations for the six African regions or countries. The paper finds that these reforms are pro-poor. There are significant reductions in the poverty headcount and the percentage of the population living in poverty for all six of the African regions from deep integration in the Tripartite Free Trade Area or comparable unilateral reforms by the East African Customs Union. Further, the incomes of the bottom 40 percent of the populations noticeably increase in all countries or regions that are engaged in the trade reforms. The reason for the poor share in prosperity is the fact that the reforms increase unskilled wages faster than the rewards of other factors of production, as the reforms tend to favor agriculture. Despite the uniform increases in income for the poorest 40 percent, there are some cases where the share of income captured by the poorest 40 percent of the population decreases. The estimated gains vary considerably across countries and reforms. Thus, countries would have an interest in negotiating for different reforms in different agreements.

PurposeThe purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008‐2009 US financial crisis and to suggest appropriate recommendations for reform.Design/methodology/approachThe approach is to examine the underlying incentives that led to the crisis and to provide supporting data to support the hypotheses.FindingsWhile Congress was fixing the savings and loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure as Congress was using government sponsored enterprise (GSE) resources and the resources of narrow constituencies for their own advantage at the expense of the public interest. Second, in the mid‐1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to use flexible and innovative methods to lower bank mortgage standards to underserved areas. Crucially, this disarmed regulators and the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies, and asset managers were all plagued by problems such as moral hazard or conflicts of interest.Originality/valueThe paper focuses on the political economy reasons for why Congress and US administrations provided these perverse incentives to the GSEs and banks to lower mortgage standards. It also proposes some innovative methods of improving bank regulation that address the regulatory capture problem.

The Russian tariff structure contains over 11,000 tariff lines. Of these, a specific tariff may apply for about 1,700. Due to a new data set, this is the first paper to accurately assess tariff rates. We find that the average tariff in Russia has increased between 2001 and 2003, from about 11.5 percent to between 13 percent and 14.5 percent, but held steady in 2004 and 2005. This places Russia's tariffs at a level slightly higher than other middleincome countries and considerably higher than Organization for Economic Cooperation and Development countries. Russia implemented tariff simplification in 2000-2001. Contrary to conventional wisdom on the effect of tariff simplification, the trade-weighted standard deviation of the Russian tariff increased, approximately doubling from 9.5 percent in 2001 to 18 percent in 2003, but it then fell to 15.2 percent by 2005. We show that ignoring the specific tariffs results in an underestimate of average tariff rates by about one to three percentage points and an even ...

We employ a computable general equilibrium model of the Kazakh economy to assess the effect of accession to the World Trade Organization (WTO). Our model incorporates foreign direct investment by multinational business service providers and by multinational oil and gas companies; it contains endogenous productivity effects in both goods and services markets through a Dixit-Stiglitz (1977) framework. Our model is innovative in that we assess the effect of local content provisions for multinational oil and gas companies, provisions that are highly contentious in WTO accession negotiations. We show that our model features are crucial to the results, as the estimated gains are more than ten times larger than the gains from a constant return-to-scale model.

The authors use a computable general equilibrium model of the Russian economy to assess the impact of accession to the World Trade Organization (WTO), which encompasses improved market access, tariff reduction, and reduction of barriers against multinational service providers. They assume that foreign direct investment in business services is necessary for multinationals to compete well with Russian business service providers, but cross-border service provision is also present. The model incorporates productivity effects in both goods and services markets endogenously through a Dixit-Stiglitz framework. As a result, the estimated gains from WTO accession are much larger than would be obtained from a typical model with perfect competition. The ad valorem equivalent of barriers to foreign direct investment have been estimated based on detailed questionnaires completed by specialized research institutes in Russia. The authors estimate that Russia will gain about 7.2 percent of the value of Russian consumption in the medium run from WTO accession and up to 24 percent in the long run. They estimate that the largest gains to Russia will derive from liberalization of barriers against multinational service providers. Piecemeal and systematic sensitivity analysis shows that their results are robust.