TY  - JOUR
AU  - Anderson,James E.
AU  - Wincoop,Eric van
TI  - Borders, Trade and Welfare
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8515
PY  - 2001
Y2  - October 2001
UR  - http://www.nber.org/papers/w8515
L1  - http://www.nber.org/papers/w8515.pdf
N1  - Author contact info:
James E. Anderson
Department of Economics
Boston College
Chestnut Hill, MA 02467
Tel: 617/552-3691
Fax: 617/552-2308
E-Mail: james.anderson.1@bc.edu

Eric van Wincoop
Department of Economics
University of Virginia
P.O. Box 400182
Charlottesville, VA  22904-4182
Tel: 434/924-3997
Fax: 434/982-2904
E-Mail: vanwincoop@virginia.edu
AB  - International economic integration yields large potential welfare effects, even in a static constant returns competitive world economy. Our method is novel. The effect of border barriers on trade flows is often inferred from gravity models. But their rather atheoretic structure precludes welfare analysis. Computable general equilibrium models are designed for tight welfare analysis, but lack econometric foundation. Our method combines these approaches. Gravity models based on Anderson's (1979) interpretation are full general equilibrium models of a special simple sort. In Anderson and van Wincoop (NBER WP 8079, 2001) we develop and estimate this structure, then calculate the comparative static effects on trade flows of border barriers. In this paper we further deploy the model to explore the comparative statics of welfare with respect to borders, to currency unions and to NAFTA.  Our NAFTA exercise does a much better job of replicating the actual trade flow changes than do computable general equilibrium models. An interesting implication is that terms of trade changes are very important, even for  small' countries such as Mexico.
ER  -