The Impact of Trade Agreements on Consumer Welfare

33 Pages Posted: 18 Apr 2016

See all articles by Giuseppe Berlingieri

Giuseppe Berlingieri

ESSEC Business School - Economics Department; Organization for Economic Co-Operation and Development (OECD) - Directorate for Science, Technology and Industry (STI); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Holger Breinlich

University of Surrey - School of Economics; Centre for Economic Policy Research (CEPR); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Swati Dhingra

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Date Written: March 2016

Abstract

A central tenet of international economics is that trade liberalization provides welfare gains. This paper contributes to the literature on gains from trade by estimating how trade agreements impact the consumer price index, and by quantifying the sources of their impact on welfare. We infer quality of imported products by estimating demand-side elasticities for the European Union (EU) between 1993 and 2013. Having inferred quality, we estimate the contribution of lower prices, better quality and greater variety to welfare gains from trade agreements. Joining a trade agreement increases welfare through access to higher quality imports. Quality rises by 7% on average, which translates into a cumulative reduction in the consumer price index of 0.18% during the period. Ignoring the quality channel under-estimates the gains from trade agreements because unit values were not significantly impacted by the new agreements.

Keywords: Elasticity, FTA, Quality, Trade agreement, Unit Values, Variety

JEL Classification: F1, F5, F6, L6

Suggested Citation

Berlingieri, Giuseppe and Breinlich, Holger and Dhingra, Swati, The Impact of Trade Agreements on Consumer Welfare (March 2016). CEPR Discussion Paper No. DP11148, Available at SSRN: https://ssrn.com/abstract=2766441

Giuseppe Berlingieri (Contact Author)

ESSEC Business School - Economics Department ( email )

95021 Cergy-Pontoise Cedex
France

Organization for Economic Co-Operation and Development (OECD) - Directorate for Science, Technology and Industry (STI) ( email )

Paris
France

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Holger Breinlich

University of Surrey - School of Economics ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Swati Dhingra

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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