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The Impact of Trade Agreements on Consumer Welfare

Author

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  • Breinlich, Holger
  • Dhingra, Swati
  • Berlingieri, Giuseppe
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.

Suggested Citation

  • Breinlich, Holger & Dhingra, Swati & Berlingieri, Giuseppe, 2016. "The Impact of Trade Agreements on Consumer Welfare," CEPR Discussion Papers 11148, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11148
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    References listed on IDEAS

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    Cited by:

    1. Flach, Lisandra & Unger, Florian, 2022. "Quality and gravity in international trade," Journal of International Economics, Elsevier, vol. 137(C).
    2. Swati Dhingra & Gianmarco Ottaviano & Veronica Rappoport & Thomas Sampson & Catherine Thomas, 2018. "UK trade and FDI: A post‐Brexit perspective," Papers in Regional Science, Wiley Blackwell, vol. 97(1), pages 9-24, March.
    3. Juan Carluccio & Erwan Gautier & Sophie Guilloux-Nefussi, 2018. "Dissecting the Impact of Imports from Low-Wage Countries on French Consumer Prices," Working papers 672, Banque de France.
    4. Lisandra Flach & Fabian Gräf, 2018. "The Impact of Trade Agreements on World Export Prices," CESifo Working Paper Series 7032, CESifo.

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    More about this item

    Keywords

    Trade agreement; Quality; Fta; Elasticity; Variety; Unit values;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • F6 - International Economics - - Economic Impacts of Globalization
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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