Estrades, Maliszewska, Osorio-Rodarte, and Seara E Pereira. (2021) these policies is costless, resulting in upper bound estimates of potential gains. Fourth, as found in previous studies, trade liberalization leads to an increase in productivity, and thus we simulated an increase in productivity associated with the falling trade costs (the “productivity kick”).<sup>12</sup> Table 1. Simulation scenarios

|**Scenario**|**Policy instrument**|**Shock**|
|---|---|---|
|_RCEP_tar_<br>Tariffs alone|Tariffs|RCEP Tariff reduction schedule|
|_RCEP_<br>Full scenario|Tariffs and NTM|RCEP Tariff reduction schedule<br>Preferential NTM reduction:<br>-35% agricultural goods<br>-25% manufacturing goods<br>-25% on services<br>10% non-preferential NTM reduction|
|_RCEP_roo_<br>ROO liberalization|Tariffs, NTM, and trade costs|RCEP Tariff reduction schedule<br>NTM reduction as in RCEP<br>1% reduction in trade costs among RCEP<br>members|
|_RCEP_prod_<br>Productivity kick|Tariffs, NTM, and trade costs|RCEP_roo with productivity increase|

Source: own elaboration As sensitivity scenarios, we simulated the same shocks, calibrating the model with the ad valorem equivalents of non-tariff measures on goods from Kee and Nicita (2018), and we run an alternative scenario in which we assume that the trade cost reduction due to the common rule of origin regime only affects trade in manufacturing goods (see Appendix II). Manufacturing relies heavily on intermediate goods and other inputs, making it a sector susceptible to changes due to the implementation of rules of origin.

We complement the general equilibrium analysis with a simple global microeconomic model to obtain impacts on poverty and income distribution. The initial global distribution of per capita consumption/income was constructed with household-based data. Country-specific growth rates in real per capita household consumption from the CGE are fully transmitted to households assuming distribution-neutrality. To calculate the number of poor, the total population in each country is adjusted using United Nations population projections. There are 163 countries represented in the microeconomic model with 146 harmonized, nationally representative household surveys obtained from the World Bank’s Global Micro Database. Additional per capita consumption/income distributions for 17 countries were obtained from the PovcalNet website. The analysis on poverty omits Brunei Darussalam, Cambodia, and Singapore due to lack of data.<sup>13</sup>

> 12 There is extensive empirical evidence that finds that trade liberalization leads to an increase in productivity, mainly in developing countries, as reviewed by Shu and Steinwender (2018). CGE models with constant returns to scale usually underestimate the gains from liberalization (USITC 1997; Tarr 2012), and for that reason, including a productivity shifter is empirically valid (Partdrige and Rickman 2010). The elasticities of productivity to trade liberalization vary. Following Topalova & Khandelwal (2011), we assume that a 10 percentage fall in tariffs leads to a 4.8 percentage increase in labor productivity in the economy. Similar results are found by Fernandes (2007) for Colombia.

> 13 For further details, see <u>http://iresearch.worldbank.org/PovcalNet/povOnDemand.aspx.</u>

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