ABSTRACT
This chapter reviews the literature on the economic effects of reciprocal free trade agreements (FTAs). It discusses the impact of FTAs on trade volumes, firm and labour market outcomes, and on consumer welfare. The broad picture that emerges is one of positive long-term effects, accompanied by often substantial short-term adjustment costs. While some concerns with appropriate measurement remain, FTAs seem to increase trade flows, profitability and economic efficiency. At the same time, however, trade agreements can lead to important wage and employment losses, at least in the short term.
