Measuring the benefits of unilateral trade liberalization; part 2: dynamic models

Abstract

This is the second of two articles examining the potential welfare gains or losses from a unilateral move toward free trade. Part 1 concluded that applied static models of international trade fail to produce eye-popping positive welfare effects. In Part 2, Carlos Zarazaga reviews available applied dynamic general equilibrium models. He finds that the promises of larger welfare gains from unilateral trade liberalization do materialize in some dynamic models. However, other models cannot completely dismiss some common objections to the adoption of unilateral free trade policies. Zarazaga also identifies the controversial theoretical and empirical issues behind those objections that will have to be resolved before unilateral trade liberalization is accepted as the definitive, welfare-improving alternative to costly and prolonged multilateral trade agreements.