Why Do the Gains from Trade Reform Vary Between Countries?

This paper assesses, both theoretically and empirically, the determinants of differential gains from trade policy reform across countries. The theoretical model shows that asymmetrical features of the world economy, including the relative size of the differentiated products sector in each country, the dominance of domestic markets by indigenous producers, trade costs, and the relative importance of exports, all play an important role. Results from a multi-region computable general equilibrium model substantiate the proposition that the initial pattern of asymmetry is relatively more important than scale and varietal effects, despite the fact that the latter have received more attention in the literature.