PROJECTED BENEFITS OF THE DOHA ROUND HINGE
ON MISLEADING TRADE MODEL

The New School’s Schwartz Center for Economic Policy Analysis
Releases a Major New Study

New York, NY—March 15, 2007—The World Bank underestimates the risks and overestimates the benefits of multilateral trade liberalization, according to a new study released today by The New School’s Bernard Schwartz Center for Economic Policy Analysis. Written by Lance Taylor, the Arnhold Professor of International Cooperation and Development at The New School, the study comes as many policy-makers are wondering about the future of the Doha round, the world trade talks that first began in Doha, Quatar in November 2001 but have repeatedly collapsed since then, despite several attempts at revival.

Some commentators have cited intractable differences between poor and wealthy countries regarding protection and development policies as a salient reason for the collapse. Yet any possible Doha agreement, Taylor shows, would offer developing countries, particularly those in sub-Saharan Africa, only limited gains, given the variability of such macroeconomic indicators as employment, income, government deficits, and trade deficits—indicators that the World Bank’s global computable general equilibrium model (CGE) assumes are constant and neutral. The erroneous assumptions of The World Bank’s trade model have fueled erroneous projections of global welfare gains from trade liberalization. On Taylor’s account, the CGE model must be substantially revised to make it both more realistic and more relevant for policy-makers concerned about the macroeconomic implications of a reduction in tariffs.

“When the analysis allows for a changing rather than a fixed government budget deficit,” he observes, “the African public balance often deteriorates, whereas the rest of the world’s fiscal position improves. Our study finds that if employment and income are variable, they may increase in sub-Saharan Africa, but in tandem with mounting trade deficits and foreign debt, rendering such advances temporary.” His conclusion is therefore that “developing countries would be ill-advised to follow the radical recommendations of the World Bank’s liberalization strategy insofar as it rests on results from the current trade models. At this point, there is every reason to demand serious revisions to proposals from developed countries prior to any revival of the Doha process.”

His study is available as a downloadable pdf file at www.newschool.edu/cepa/publications/index.htm#PolicyNotes

ABOUT THE BERNARD SCHWARTZ CENTER FOR ECONOMIC POLICY ANALYSIS AT THE NEW SCHOOL

The Bernard Schwartz Center for Economic Policy Analysis, made possible through a generous gift from Irene and Bernard L. Schwartz, is the lively economic research arm of The New School for Social Research. Economists at the Schwartz Center study economic growth, employment, and inequality in the U.S. economy and its global context. Each year the center hosts economic policy workshops, publishes topical policy notes, and sponsors newsworthy lectures by top economists and financial leaders. These activities influence key national and international policy debates and help advance the best aims of economic justice.  For more information, visit www.cepa.newschool.edu