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Small countries and the case for regionalism vs. multilateralism

Author

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  • Burfisher, Mary E.
  • Robinson, Sherman
  • Thierfelder, Karen
Abstract
Much of the debate over whether or not developing countries gain from regional trade agreements (RTA's) has focused on two characteristics that are common to developing countries: their relatively high tariffs and their high trade dependencies on one or a few developed trade partners. In this paper, we address a third common characteristic: their use of distorting domestic policies that are closely linked to trade restrictions. We argue that participation in an RTA can create pressures for domestic policy reforms. We analyze the case of a small country, Mexico, forming an RTA with two larger countries, the U.S. and Canada, in the North American Free Trade Agreement (NAFTA). Mexico exhibits all three characteristics of a developing country: relatively high tariffs, a high trade dependency on the U.S., and an extensive and pervasive system of farm support that was linked to the restriction of trade. For the analysis, we use a 26- sector, multi-country, computable general equilibrium (CGE) model in which the three single- country models are linked through trade flows, and farm programs are modeled in detail. We find that there are welfare gains from trade liberalization in all three countries only when domestic reforms are in place. Mexico gains from NAFTA only when it also removes domestic distortions in agriculture. Then, agriculture can generate allocative efficiency gains that are large enough to offset the terms of trade losses which arise because Mexico has higher initial tariffs than other RTA members.

Suggested Citation

  • Burfisher, Mary E. & Robinson, Sherman & Thierfelder, Karen, 2000. "Small countries and the case for regionalism vs. multilateralism," TMD discussion papers 54, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:tmddps:54
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    References listed on IDEAS

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    1. Devarajan, Shantayanan & Lewis, Jeffrey D & Robinson, Sherman, 1993. "External Shocks, Purchasing Power Parity, and the Equilibrium Real Exchange Rate," The World Bank Economic Review, World Bank, vol. 7(1), pages 45-63, January.
    2. Robinson, Sherman & Thierfelder, Karen, 2002. "Trade liberalisation and regional integration: the search for large numbers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), pages 1-20.
    3. Martin,Will & Winters,L. Alan (ed.), 1996. "The Uruguay Round and the Developing Countries," Cambridge Books, Cambridge University Press, number 9780521586016, September.
    4. Anderson, James E., 1998. "The Uruguay Round and welfare in some distorted agricultural economies," Journal of Development Economics, Elsevier, vol. 56(2), pages 393-410, August.
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    7. Schiff, Maurice, 1996. "Small is beautiful : preferential trade agreements and the impact of country size, market share, efficiency, and trade policy," Policy Research Working Paper Series 1668, The World Bank.
    8. Clarete, Ramon L. & Whalley, John, 1988. "Interactions between trade policies and domestic distortions in a small open developing country," Journal of International Economics, Elsevier, vol. 24(3-4), pages 345-358, May.
    9. Robinson, Sherman, 1989. "Multisectoral models," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 18, pages 885-947, Elsevier.
    10. Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
    11. Kilkenny, Maureen & Robinson, Sherman, 1990. "Computable general equilibrium analysis of agricultural liberalization: Factor mobility and macro closure," Journal of Policy Modeling, Elsevier, vol. 12(3), pages 527-556.
    12. Kilkenny, Maureen, 1991. "Computable General Equilibrium Modeling of Agricultural Policies: Documentation of the 30-Sector FPGE GAMS Model of the United States," Staff Reports 278539, United States Department of Agriculture, Economic Research Service.
    13. Winters, L. Alan, 1996. "Regionalism versus multilateralism," Policy Research Working Paper Series 1687, The World Bank.
    14. Burfisher, Mary & Robinson, Sherman & Thierfelder, Karen, 1992. "Agricultural and food policies in a United States-Mexico free trade area," The North American Journal of Economics and Finance, Elsevier, vol. 3(2), pages 117-139.
    15. Devarajan, Shantayanan & Lewis, Jeffrey & Robinson, Sherman, 1990. "Policy Lessons from Two-Sector Models," CUDARE Working Papers 198566, University of California, Berkeley, Department of Agricultural and Resource Economics.
    16. Arvind Panagariya & Jagdish Bhagwati, 1996. "The Economics of Preferential Trade Agreements," Books, American Enterprise Institute, number 51856, September.
    17. Arvind Panagariya, 1996. "The Free Trade Area of the Americas: Good for Latin America?," The World Economy, Wiley Blackwell, vol. 19(5), pages 485-515, September.
    18. Richard Green & Julian M. Alston, 1990. "Elasticities in AIDS Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(2), pages 442-445.
    19. Hinojosa-Ojeda, Raul & Robinson, Sherman, 1991. "Alternative Scenarios of U.S.-Mexico Integration: A Computable General Equilibrium Approach," CUDARE Working Papers 198585, University of California, Berkeley, Department of Agricultural and Resource Economics.
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    Cited by:

    1. Luc Savard, 2010. "Using an Almost Ideal Demand System in a Macro-Micro Modelling Context to Analyse Poverty and Inequalities," Cahiers de recherche 10-04, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    2. Luc Savard, 2004. "Un système de demandes AIDS dans un contexte EGC microsimulation pour l'analyse de pauvreté et des inégalités," Cahiers de recherche 04-10, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    3. Mayeres, Inge & van Regemorter, Denise, 2002. "Modelling the Health Related Benefits of Environmental Policies: A CGE Model for the EU-15 Countries," Conference papers 331046, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Meilke, Karl D. & Rude, James & Burfisher, Mary E. & Bredahl, Maury E., 2001. "Market Access: Issues And Options In The Agricultural Negotiations," Commissioned Papers 14625, International Agricultural Trade Research Consortium.
    5. Bouet, Antoine & Mevel, Simon & Thomas, Marcelle, 2008. "The effects of alternative free trade agreements on Peru: Evidence from a global computable general equilibrium model," IFPRI discussion papers 824, International Food Policy Research Institute (IFPRI).
    6. Hewitt, Joanna, 2008. "Impact evaluation of research by the International Food Policy Research Institute on agricultural trade liberalization, developing countries, and WTO's Doha negotiations:," Impact assessments 28, International Food Policy Research Institute (IFPRI).

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