An analysis of the effects of preferential trade policies through the estimation of quantitative models: the case of Portugal.

Doutoramento em Economia.

The purpose of this dissertation is to study the trade and welfare effects of the preferential trade policies adopted by Portugal, with a view to as·sess the future impact of full membership of the European Communities, and recommend pol icy options in this context. The dissertation isg ized in four Parts. Part I examines the main orientations in trade and industrial policies and their i mpact upon the Portuguese pattern of industrial development. This study serves to illu­ minate the historical context in which preferential trade policies were conceived and implemented in the past. In the two following Parts, the methodological and theoretical background to the construction of quantitative trade models is developed. Part I I surveys the 11 theory of customs unions11 • Economic rationale for the adop­ tion of preferential trade policies are sought for, under alternative frameworks characterized by different market imperfections. Part I I I surveys available methodologies that quantify the trade and welfare effects of preferential trade policy under two different headings: "residual" methods and "analytical" models of trade. The conclusions are based upon the results obtained with: - a gravity model, describing the geographical pattern of manufactured exports and imports, between 1971 and 1982. and a time-series model of demand functions, specified in a three-stage framework for the period 1961/80. The quantitative analysis yielded substantial export gains, with strong concentration on a few commodity groups.This pattern is very simi lar to that arising from EFTA membership, in the sixties., which suggests poor ability to diversify exports. On the import side, the Free Trade Agree· ment with the EEC produced significant trade reversion away from EFTA sources. However, the expected outcome of preferential policy was frus­ trated by the simultaneous adoption of non-tariff barriers, with a net trade eroding effect. Full membershi p of the EEC cal I s for a careful evaluati on of the consequences of a non-programmed removal of impl icit barri ers. A transitional period i s justi fi ed in thi s respect al so, in coordination with adjustment assi stance. Import liberal ization wi ll not be sufficient though to promote expansion and diversification of exports. Adequate intervention is needed in order to achieve smooth resource re­ allocation without increasi ng the rate of unemployment.