Benefit–Cost Analysis of Increased Trade: An Order-of-Magnitude Estimate of the Benefit–Cost Ratio

Abstract Drawing upon recent studies that empirically estimate both the benefits and costs of trade, this paper addresses a simple important question: By how much do increased global trade outweigh costs? To best our knowledge, is first attempt to answer question at World Bank income-grouping levels using estimated relationships from cost literature. Using structural gravity model, we simulate changes in three primary constraints: 10% reduction tariff levels, effective distance, increase free agreement depth. The projection leads roughly 5% by value. Our model suggests has an incredibly high benefit–cost ratio (BCR) for developing world with order-of-magnitude low- lower–middle-income countries 100 upper–middle-income 50. However, BCR high-income substantially lower, value closer 5. Overall, results suggest substantial net globally, generating US$ 700 billion (0.83% GDP) (0.12% year, differential grows over time. Sensitivity analyses BCRs are on lower end plausible range. point incredible particularly countries, reiterate importance considering distributional impacts when implementing reforms.