Keywords

general equilibrium, trade agreement, trade policy, trade liberalization, welfare gains

We consider the effects on Croatia of several important trade policy reforms using a quantitative, multi-regional, general equilibrium framework. A complete trade agreement with the European Union requires that some intermediate reforms occur, such as Croatia joining the World Trade Organization and liberalizing its trade policies. We evaluate the current trade regime of Croatia to assess what impacts those reforms will have. We then employ a quantitative simulation model to measure the effects on welfare of the intermediate reforms as well as the complete reform. We find that Croatia may suffer some short-term reductions in welfare as it starts out on the path to liberalization, but that there are welfare gains from complete liberalization. It is therefore important that the initial policy reforms be seen as one step along a path that will eventually provide demonstrable welfare gains, rather than as an end in themselves. Our approach is also designed to provide a formal simulation model that can be used to re-examine these issues as the reforms proceed, as they are modified, and as better data becomes available.