possible for any of the 86 countries or country groups in Version 6 of the GTAP model and any of its 57 sectors of production (20 agricultural and processed food sectors, 22 other manufacturing sectors, and 15 services sectors). Since Armington elasticities are included, bilateral as well as total trade effects can be explored. This enables far more sophisticated analyses for preferential and multilateral trade negotiations than was possible only a few years ago.

GTAP is of course not the only such global CGE model, but it is certainly the most widely used. Others were also used in the ex post analysis of the Uruguay Round (see the various chapters in Martin and Winters 1996) and are now being used for ex ante analyses of the current WTO round of trade negotiations and the numerous bilateral and regional freetrade-area proposals that have become fashionable again in recent years.

Another popular family of models arose from expanding a global macro model by adding some sectoral detail (McKibbin and Wilcoxen 1995). While having far fewer sectors and regions than GTAP, and while relying heavily on the GTAP database, the McKibbin family of models includes capital markets and is dynamic and so is able to generate paths of adjustment to simulated shocks. As in dynamic national CGE models, the latter feature has obvious appeal to policymakers concerned with the short to medium term effects of reform on their constituents.

# **_c._** _Adjustment costs_

The private costs of adjustment for firms and workers to trade reform are paramount in many people’s minds, as reform forces some industries to downsize or close so as to allow others to expand (Matusz and Tarr 2000; Francois 2003). There are also social costs to consider, involving social safety net provisions in so far as such schemes are developed/drawn on by losers from reform (e.g., unemployment payments plus training grants to build up new skills so displaced workers can earn the same wage as before), and perhaps increased costs of crime in so far as its incidence rises with transitional unemployment. Those one -off costs, which need to be weighed against the non-stop flow of economic benefits from reform, tend to be smaller, the longer the phase-in period or smaller the tariff or subsidy cut per year (Furusawa and Lai 1999).<sup>22</sup> They also appear to be small relative to the benefits from reform. An early study by Magee (1972) for the United States estimated the cost of job changes including temporary unemployment to be no more than one-eighth of the initial benefits from tariff and quota elimination. Even assuming that transition took as many as five years, he estimated a benefit/cost ratio of 25. A subsequent study which examined a 50 percent cut in US tariffs (but not quotas) came up with a similar benefit/cost estimate (Baldwin, Mutti and Richardson 1980). In more recent debates about trade and labor, analysts have not found a significant link between import expansion and increased unemployment (see Greenaway and Nelson 2002).

For developing countries also the evidence seems to suggest low costs of adjustment, not least because trade reform typically causes a growth spurt (Krueger 1983). In a study of 13 liberalization efforts for nine developing countries, Michaely et al. (1991) found only one example where employment was not higher within a year. A survey of 18 Latin American countries for the period 1970 to 1996, by Marquez and Pages (1998), found some increases in short-term unemployment, but mainly in countries where the real exchange rate appreciated as a result of capital inflows that had accompanied the reforms. That small short-term

> 22 The adjustment required also tends to be small when compared with the changes due to exchange rate fluctuations, technological improvements, preference shifts and other economic shocks and structural developments associated with normal economic growth (Anderson et al. 1997; Dixon, Menon and Rimmer 2000).

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