Center for Economic Research, Department of Economics, University of Minnesota
Many developing economies have joined or applied to join the WTO as part of
their process of transformation to market-oriented economies. Accession to the WTO
involves provisions to liberalize capital markets and to significantly reduce domestic
industrial subsidies to the, usually large, state-owned sector. Therefore, any welfare
gains derived from such policies are to be considered as part of the welfare gains of
trade liberalization. In this paper we develop a dynamic applied general equilibrium
model to quantitatively assess the welfare benefits of capital market liberalization and
domestic industrial policy reform, and we apply it to the case of China's accession to
the WTO. We find that most of China's benefits of accessing the WTO are derived
from the reduction of the state-owned sector driven by the reform in domestic policy
required by the treaty. The highest welfare benefits occur when both domestic policy
reform and capital market liberalization are jointly implemented. Welfare is enhanced
by early opening of the capital markets.
Bajona, Claustre; Chu, Tianshu.
Economic Effects of Liberalization: The Case of China's Accession to the World Trade Organization.
Center for Economic Research, Department of Economics, University of Minnesota.
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