Terms of trade and global efficiency effects of free trade agreements, 1990–2002

This paper infers the terms of trade effects of free trade agreements (FTAs) implemented in the 1990s. We estimate large FTA effects on bilateral trade volume in 2 digit manufacturing goods from 1990–2002, using panel data gravity methods to resolve two way causality. The terms of trade changes implied by these volume effects are deduced for 40 countries plus a rest-of-the-world aggregate using an endowments general equilibrium model. Some countries gain over 5% of real manufacturing income, some lose less than 0.3%. Global efficiency of manufactures trade rises 0.9% based on a distance function measure of iceberg melting. •We infer the terms of trade effects of free trade agreements implemented 1990–2002.•Panel data methods resolve two way causality between trade and FTAs.•Some members gain over 5% of real manufacturing income.•Some non-members lose less than 0.3%.•Global efficiency rises 0.9% using novel distance function measure.