Storm in a Spaghetti Bowl: FTAs and the BRIICS

Abstract

In this study we analyze the welfare and sectoral effects of a variety of options for the formation of free trade agreements by several major emerging market economies. The economies covered include: Brazil, Russia, India, Indonesia, China, and South Africa (BRIICS). The analysis is carried out using the Michigan Model of World Production and Trade, which is a multi‐country, multi‐sectoral computational general equilibrium (CGE) model of the global trading system. The version of the model that we use includes 31 countries/regions plus the rest‐of‐world and 27 sectors in each country/region. The unique feature of our study is that we have analyzed the simultaneous removal of trade barriers for the BRIICS countries with a variety of FTA partners. The computational results presented thus reflect both the direct effects of the bilateral FTAs and the effects of the other FTAs assumed to be undertaken. The computational results suggest that the welfare effects of the different FTA options are for the most part fairly small in absolute terms and as a percentage of GDP. We compare the FTA results with assumed adoption of unilateral free trade by the individual BRIICS nations and global (multilateral) free trade by all of the countries/regions covered in the Michigan Model. These calculations suggest that the welfare benefits of global (multilateral) free trade are much greater than the benefits to be derived from the various FTAs for the BRIICS countries that we have analyzed and from the assumed unilateral free trade for these countries.