Resultados Obtenidos de las Fermentaciones Experimentales:

7.3.1 Methodological Underpinnings

Partial equilibrium counterfactual analysis (PECA) was the earliest technique employed by researchers to evaluate the economic effects of RTAs. In general, studies of this group involve simulation exercises based on specific models, undertaken before the official formation or extension of a particular RTA and they are designed based on characteristics of prominent trade theories (Srinivasan, Whalley, and Wooton 1993, 52-79). Parameter values for production, preferences and trade barriers are introduced into the models in an effort to perform ex ante

counterfactual analyses assessing potential effects of a trading bloc. The application of this technique of analysis is not only limited to the examination of RTAs, since it can also be used to perform simulation exercises of policy experiments of other trading arrangements such as bilateral free trade agreements.

The use of partial equilibrium analysis is, however, subject to limitations. According to Micheal Gasiorek, Alasdair Smith and Anthony Venables (1992, 35) a partial equilibrium approach to study the economic effects of an economic integration is incomplete for two reasons. First, partial equilibrium analysis assumes that resources used by an industry under investigation are available at prices equal to social opportunity cost. If one imperfectly competitive industry’s expansion is only possible at the expense of another’s contraction (due to overall resource constraint), then this assumption is no longer valid, therefore the result of a study may overestimate the welfare gains associated with any policy experiments. Second, partial equilibrium studies assume that inputs supply curves are horizontal, so that resources are available to an industry at constant prices. If inputs supply curves to each industry are in fact upward sloping, partial equilibrium studies again overestimate the effects of the policy experiments.

7.3.2 Empirical Research Based on PECA

Verdoorn (1954) study was an early example of partial equilibrium counterfactual analysis examining the effects of an intra-OECD trade arrangement on members as well as on the rest of the world (ROW). In this study he used a static partial equilibrium analysis under a perfectly competitive market structure. Key assumptions he employed were that –0.5 consumption elasticity of substitution between imports and domestic production and –2 between different countries’ exports. Under his framework, import tariffs on manufactures are eliminated among 10 OECD countries. A common external tariff is then imposed on non members after the formation of the grouping. Under the situation of unchanged exchange rates, his simulation showed that total world export increased by US$400 million (2.6 percent of 1952 total world export), meanwhile intra-bloc export increased much larger at US$1 billion (19 percent of 1952 intra-bloc exports). He also showed substantial trade diversion; of the US$1 billion increase in intra-OECD export, US$600 million (6 percent of 1952 total world export) is diverted (into the group) from the rest of the world.

Another partial equilibrium study was performed by Harry Johnson (1958), assessing the potential benefits associated with the UK’s entry into the EEC. He calculated potential welfare gains to the UK due to lower tariffs facing UK exporters as well as lower prices received by its importers. Like Verdoorn, this study also examined the impact on manufactured products, whereby tariffs between the UK and EEC are eliminated. A common external tariff is also imposed on outside countries after the bloc formation. Johnson found that trade gains accrued to the UK were between £62-£192 million for exports and £31 million for imports. At the minimum, welfare gain to the UK was roughly 1 percent of its Gross National Products (GNP), which would occur in 1970.

Employing data used previously by Verdoorn (1954), Tibor Scitovsky (1958) undertook a partial equilibrium study examining gains from the formation of the EEC under the situation of changing exchange rates. In his model, different marginal costs between countries in a particular industry are taken to be due to a difference in import tariffs in an importing country. The gain from integration is thus in terms of resource gains due to the equalization of marginal costs. Using Verdoorn data, he assumed that when trade imbalances occur because of the formation of the EEC, exchange rates will appreciate to bring the trade back into a balance as before its formation. Scitovsky found that the EEC gained US$74 million, the same amount that the ROW loss. This is a gain from increased specialization and represented only 0.05 percent of European GNP. In addition, the EEC countries also gained US$465 million from a favourable terms-of-trade improvement.

Smith and Venables (1988) used a static partial equilibrium model to simulate various possible scenarios of the effects of the EC-1992 single market program.43 These include the range of products available to consumers, the level of prices, and welfare gains. In order to capture these effects they employed a model of trade under imperfect competition, originally developed by Krugman (1979). This means that firms operate under increasing return to scale (IRS) and produce differentiated goods, while market in equilibrium involves intra-industry trade. This study considered ten industry sectors, each of which has firms that use IRS technology. The rest of the economy is, however, modelled as perfectly competitive industries with constant return to scale technology in each industry. Trading countries (and regions) included in the study were France, Germany, Italy, the UK, the rest of the EC and ROW.

43 _{As a result of further integration of EEC members, originally formed in 1957, the name of this economic grouping}

Following a method employed by past studies, they chose sector-by-sector trade barrier reductions in the order of 2.5 percent of the base value of intra-EC trade. They analysed segmented and integrated markets when barriers are removed under Cournot and Bertrand markets, in which the number of firms is either fixed (Cournot) or varied (Bertrand). Under Cournot market, the equilibrium of demand and supply is determined only by changes in outputs as prices are held constant. In contrast, under Bertrand outputs are held constant but prices are allowed to change. They found that under Cournot market, the welfare effects caused by the removal of barriers for segmented markets range from – 0.01 percent of consumption for cement, lime and plaster to 1.3 percent for office machinery. The effects were higher for integrated markets, ranging from 0.2 percent for cement, lime and plaster to 5.6 percent for artificial and synthetic fibres. Under Bertrand market, welfare effects for segmented markets were insignificantly low, whereas for integrated markets the results were higher in the range of 0.04 to 1.2 percent for the 10 industry sectors.