erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Measuring the Welfare Effects of Trade Reform: Partial versus General Equilibrium

Kıvanç A. Kırgız (Duke University, USA)

Abstract  

Accurate measurement of welfare effects is crucial in the evaluation of trade policies. The purpose of this paper is to qualitatively gauge the differences in welfare measurement between the two different measurement methodologies: partial and general equilibrium. The application is to the post-1990 tariff liberalization in the Turkish automobile industry. The paper first econometrically estimates a partial equilibrium model of the automobile industry. The model follows the recent advances in the new empirical industrial organization literature and uses a discrete choice approach (nested logit) on the demand side and an oligopoly model with differentiated goods on the supply side. The general equilibrium model is built around the partial equilibrium model by adding vertical and horizontal linkages to other sectors, the factor markets as well as the economywide constraints. This approach facilitates proper comparison since it keeps the utility specification, the cost structure and the behavioral assumptions in the automobile sector the same in both models. As a result, the differences in the welfare measures are due to the underlying partial and general equilibrium assumptions and not a consequence of different specifications of consumer preferences or firm behavior. Although the final results from the general equilibrium results are not available yet, they are expected by the time of the conference.

Economic Research Center
Middle East Technical University
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e-mail: metuerc@metu.edu.tr