Consistent Trade Policy Aggregation

Most empirical policy work requires the aggregation of policies. Trade policyaggregation exemplifies the aggregation problem poignantly, with thousands of highlydispersed trade barriers. This paper provides methods of policy aggregation that areconsistent with two common objectives of empirical work. One is to preserve realincome. The other is to preserve the real volume of activity in the parts of the economybeing aggregated. Both objectives must be achieved for consistent multi-country policymodeling. An application to India shows that the standard atheoretic method ofaggregation overstates India’s real income by around 3 times the global gains from freetrade....