support the point made in the previous section that trade can generate not only static efficiency gains but also dynamic gains.

Some CGE modellers have tried to proxy that dynamic effect by adding an additional one-off total factor productivity shock to their trade reform scenarios. But reform may also raise the _rate_ of factor productivity growth and/or of capital accumulation. Such endogenous growth has yet to be satisfactorily introduced into CGE models, and in any case it is unclear how to interpret a model’s estimated welfare effects if households are reducing current consumption in order to boost their or their descendents’ future consumption by investing more.

It should be kept in mind that all the experiments in the comparative static CGE studies surveyed below reduce only trade barriers plus agricultural production and export subsidies. The reasons for including subsidies only in agriculture are that they are the key subsidies explicitly being negotiated at the WTO (where nonagricultural export subsidies are illegal), they represented an estimated two-fifths of all government expenditure on subsidies globally during 1994-98 (van Beers and de Moor 2001, Table 3.1), and they are fully represented in the GTAP database whereas subsidies for most other sectors are not included so it is not possible to estimate their welfare cost within the same framework. And the reason for not also explicitly estimating the welfare impacts of other domestic policies and institutions (even though, because of their complementarity, they can affect the payoff from opening up) is that typically they are beyond the sphere of influence of international trade negotiators.

With this as background, we first consider estimates of the economic benefits associated with freeing global trade completely, before turning to each of the three opportunities for politically more feasible partial reforms. The reasons for reviewing gains from full trade reform are two-fold: because it provides a benchmark against which to compare the benefits of lesser reforms; and because several models have generated full global trade reform results,<sup>12</sup> making it possible to see the range of outcomes that emerge from these different models.

# **_Global cost of current distortions to international trade_**

Estimates of the global cost of current trade distortions are obtained by simulating the removal of those policies as represented in a global CGE model. Table 1 reports a selection of estimates of the economic benefits associated with complete removal of goods trade barriers and agricultural production and export subsidies.

The first one listed in Table 1 is by Anderson, Martin and van der Mensbrugghe (2006a,b). The AMV study provides the simplest scenario: full global liberalization of just merchandise trade and farm subsidies. It uses the latest version of the World Bank’s Linkage model, assuming constant returns to scale and perfect competition in all product and factor markets.<sup>13</sup> The GTAP Version 6 database, which provides trade and protection data for 2001 (see Dimaranan 2006), is employed in that study to generate a new baseline for 2005 (allowing for recent policy changes including the completion of implementation of the Uruguay Round, the EU expansion to 25 members, and the accession of new members such as China and Taiwan to

> 12 Full opening of borders to immigration would be such a huge shock, and so unlikely politically relative to opening product and capital markets, as to not worth considering.

> 13 The Linkage Model is fully described by its creator (van der Mensbrugghe 2005). It is more of a long-run model than GTAP, having higher supply and trade elasticities, and it is recursive dynamic and so is readily projected forward.

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