ECONOMIC WELFARE ANALYSIS: AN APPLICATION TO THE SWOPSIM MODELING FRAMEWORK

This report presents an overview of 'welfare economics relevant to international trade issues. It describes and analyzes the strengths and weaknesses of various welfare measures commonly used in empirical trade research and concludes that the Marshallian welfare measures of consumer and producer surplus are best suited for use in the SWOPSIM modeling framework. The report then describes the procedure for creating and modifying specific spreadsheets for welfare analysis. This SWOPSIM welfare calculation framework can deal with a variety of theoretical issues in welfare analysis. These issues include the path dependency problem, producer and consumer subsidy equivalents in a multigood setting, the distinction between intermediate and final goods, joint products, and mandatory supply controls. The framework is useful for evaluating and measuring potential gains from trade, especially in the context of trade liberalization negotiations