Working Paper: CEPR ID: DP825
Authors: Zhen Kun Wang; L. Alan Winters
Abstract: This paper uses a schematic computable model of the iron and steel sectors in the European Community (EC) and Eastern Europe to explore the effects of trade policies on those sectors. In particular it explores the partial opening of EC markets to Eastern producers. Following a discussion of trade policy in iron and steel it models EC liberalization in two ways, and finds that in neither case will trade liberalization have dramatic effects. East European exports to the EC could double, or more, with completely free trade, but since these flows are small relative to both EC consumption and East European output the overall impact is limited. The EC might get a welfare gain of up to ECU 544 million, but if the EC steel sector is significantly cartelized the net effects would be around zero. Eastern Europe may gain substantially (12% increase in employment) if the EC markets are open and East European producers can take steps to correct their supply distortions. It is plain that the EC internal regime, and how East European producers are incorporated into it, will be a major determinant of the costs and benefits of liberalization in iron and steel.
Keywords: EC; Eastern Europe; Iron and Steel
JEL Codes: F13; F14; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade policy liberalization (F13) | Welfare gain for EC (D69) |
| Cartelization of steel sector (L12) | Net effects around zero from liberalization (F69) |
| Open EC markets and corrected supply distortions (F69) | 12% increase in employment in Eastern Europe (O52) |
| Complete trade liberalization (F13) | Doubling of Eastern European exports to the EC (F10) |
| Eastern European exports to EC (F14) | Limited overall impact (F69) |
| EC's internal regime and incorporation of Eastern European producers (F55) | Costs and benefits of liberalization (F69) |