The Shrinking Gains from Global Trade Liberalization in Computable General Equilibrium Models

Abstract

The latest round of world trade negotiations, launched in Doha in 2001, has come to at least a temporary halt in the aftermath of the 2005 World Trade Organization (WTO) meeting in Hong Kong. The familiar arguments about the benefits of trade liberalization have been updated and forcefully reiterated: According to the World Bank and other leading analysts, massive computer modeling exercises show that a new trade deal could yield hundreds of billions of dollars in benefits, much of it going to developing countries, and could lift vast numbers of people out of poverty. Yet the arguments and the huge projected benefits appear to be less persuasive this time, as governments around the world have often proved unable or unwilling to make the compromises required for further steps toward trade liberalization. This paper presents a critical review of the mainstream economic models used to project the effects of global trade policies, namely “computable general equilibrium” (CGE) trade models. The results of these models are typically reported as if they were hard, objective facts, providing unambiguous numerical measures of the value of liberalization. Discussion of these results often suggests that the sheer size of the estimates itself makes a powerful case for

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