ABSTRACT
This chapter concerns measuring the static welfare effects an economy may experience as the result of trade liberalization. These effects will arise as an economy adjusts to trade liberalization by altering its domestic pattern of consumption and production to the dictates of international prices and in the process more fully reaps the benefits of specialization according to its comparative advantage. The chapter examines the welfare effect of a prohibitive tariff in the case when exports and imports are treated in the aggregate as individual goods. It explores the multigoods case, making allowance for the possibility of changes in the terms of trade and tariffs on imported inputs. The chapter indicates how the analysis may be related to the effects of customs unions and trade preferences. The welfare analysis of customs unions and trade preferences is essentially the application of the ideas expressed earlier to a multicountry framework.
