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Product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies
Abstract
This paper examines the treatment of exports and imports, and external closure rules, adopted in recent single-country computable general equilibrium models of small economies. The paper presents a simple, one-sector analytic model which captures the major features of the multi-sector counterpart used in applied models. The paper derives graphical and algebraic solutions to the model and shows that, unlike some earlier external closures, this one gives rise to a well-behaved, price-taking economy. The model is also useful to illustrate the role of elasticities in popular trade-theoretic models that include traded and non-traded goods.
... =mm --, -- (1) 1 Les modèles d'équilibre général calculables il un seul pays appliqués au commerce international avec des rendements d'échelle constants et concurrence pure et parfaite sont devenus standards dans la mesure où il y a un consensus autour du traitement des échanges extérieurs ou du bouclage externe, à savoir l'utilisation de l'hypothèse d'Armington du côté des importations et d'une fonction de transformation à élasticité constante du côté des exportations. Des variantes de ces modèles standards sont utilisées par Benjamin et al. (1989), Condon (1987), Devarajan et al. (1990), Devarajan et al (1994), Dixon et al. (1992), Grais et al. (1986), Harrison et al. (1992Harrison et al. ( ,1993, , Melo et Robinson (1989), Robinson (1989), Rutherford et al. (1993), dont nous nous sommes inspirés dans la construction de notre modèle pour l'économie tunisienne. 2 L'absence de substitution entre les biens intermédiaires ou entre les fadeurs de production et les biens intermédiaires est une hrpothèse très commune dans les modèles d'équilibre général calculables appliqués au commerce international. Elle a été héritée des analyses input-output linéaires, dont on trouve un exposé dans Dervis et al. (1982) et Dixon et al. (1992). ...
... =mm --, -- (1) 1 Les modèles d'équilibre général calculables il un seul pays appliqués au commerce international avec des rendements d'échelle constants et concurrence pure et parfaite sont devenus standards dans la mesure où il y a un consensus autour du traitement des échanges extérieurs ou du bouclage externe, à savoir l'utilisation de l'hypothèse d'Armington du côté des importations et d'une fonction de transformation à élasticité constante du côté des exportations. Des variantes de ces modèles standards sont utilisées par Benjamin et al. (1989), Condon (1987), Devarajan et al. (1990), Devarajan et al (1994), Dixon et al. (1992), Grais et al. (1986), Harrison et al. (1992Harrison et al. ( ,1993, , Melo et Robinson (1989), Robinson (1989), Rutherford et al. (1993), dont nous nous sommes inspirés dans la construction de notre modèle pour l'économie tunisienne. 2 L'absence de substitution entre les biens intermédiaires ou entre les fadeurs de production et les biens intermédiaires est une hrpothèse très commune dans les modèles d'équilibre général calculables appliqués au commerce international. Elle a été héritée des analyses input-output linéaires, dont on trouve un exposé dans Dervis et al. (1982) et Dixon et al. (1992). ...
... Voir Decaluwé et al. (1988),Robinson (1989), Schubert (1993) pour plus de détails relatifs aux règles de bouclage. lIOn aurait pu choisir n'importe quel autre prix dans le modèle comme numéraire. ...
Dans cet article on se propose de construire un modèle d'équilibre général calculable standard d'une petite économie ouverte, qui va nous servir à simuler l'impact sur l'économie tunisienne d'une réduction générale des droits de douane de 10%. (Résumé d'auteur)
... The debt crisis of the early 1980s then hit the Argentinean economy, which entered a phase of deep recession. The lost decade of the 1980s, characterized by poor economic performance, ended with a major macroeconomic crisis, including two episodes of hyperinflation in 1989 and1990. The Peronist administration that took power in 1989 introduced a wide range of macro and marketbased reforms in the early 1990s. ...
... Argentina is modeled as a small open economy that takes the prices of exports and imports as givens. By following the Armington assumption (Armington, 1969;de Melo and Robinson, 1989), products are differentiated according to their country of origin (domestic versus imports) and destination (domestic versus exports). As usual, a sectoral CES and a sectoral CET are used for consumption and production, respectively. ...
... These models are particularly well-suited for energy research due to their ability to incorporate technological substitution, input-output linkages, and environmental externalities into a unified analytical framework. De Melo & Robinson [23] noted that general equilibrium models offer a coherent structure for simultaneously assessing the impacts of macroeconomic and microeconomic policies, making them especially relevant in the context of energy transitions and climate mitigation. ...
This study investigates the scholarly landscape of General Equilibrium (GE) model applications within the field of energy research through a bibliometric lens. Utilizing a dataset of 864 journal articles indexed in Scopus from 1974 to 2022, the research maps publication trends, identifies leading contributors, and uncovers prevailing thematic clusters within the field. The analysis employs VOSviewer to visualize co-authorship networks, as well as institutional and country-level productivity, source relevance, and keyword co-occurrence patterns. Results reveal that China, the United States, and Japan are the most prolific countries, while Energy Policy and Energy Economics emerge as the most influential journals. Among the authors, Masui T. stands out as the most productive, while Paganetti registers the highest number of citations, reflecting a significant scholarly impact over recent years. Keyword mapping highlights dominant research themes centered on "computable general equilibrium analysis," "computable general equilibrium model," and "emission control," reflecting the field’s alignment with climate-related energy policy evaluation. This bibliometric overview not only provides a structured understanding of intellectual developments in GE-energy research but also identifies underexplored areas that warrant further investigation—particularly the integration of GE models with renewable energy transitions in developing economies and the incorporation of behavioral and distributional dimensions within energy policy assessments. The study contributes to the advancement of interdisciplinary dialogue by informing future research directions and supporting evidence-based policymaking in the energy-climate nexus.
... Nao se utilizou aqui a "hipotese do pais pequeno", uma vez que com relativamente baixa desagregagao tal hipotese apresentar-se-ia especialmente irreal. Optou-se, alternativamente, por modelar o setor externo segundo a hipotese de Armington,16 seguindo, em geral, as sugest5es de Dervis et al. (1982) -tambem defendidas em De Melo e Robinson (1989). ...
Lower tax rates in the agricultural sector are often indicated as an example ofpolicies that benefit low-income individuals. In this paper, I use a computable general equilibrium model to evaluate the impact ofsuch a policy in Brazil. Itis found, first, that by increasing landowners' rents the policy would tend to reinforce the country's income concentration. Nonetheless, because ofthe changes in the economy's relative prices, and in particular the lowering ofthe agricultural goods prices due to the policy, the 10% ofthe population with lowest income would be indeed the group benefiting the most from it. This would occur because that group is, in proportion to its own income, the main consumer group of agricultural goods. It is also found, however, that the policy would cause a non-negligible reduction ofthe tax revenue collected by the government.
... In the implementation, we choose a widely used standard, the IFPRI model (Lofgren et al., 2002) as recently implemented by Cicowiez and Lofgren (2006). This framework is a static CGE model for a single open economy in the tradition of Dervis et al. (1982) and De Melo and Robinson (1989). Over the years, CGE models of this type have been applied to a wide range of analysis of economic policy and external shocks in developing countries; hence, it is a good starting point for illustrations; see a recent survey of CGE models with policy applications to developing countries by Devarajan and Robinson (2013). ...
... These models were particularly beneficial for short-term economic policy analysis, offering insights into the immediate interactions between different sectors and agents. A noteworthy example of this application was the use of general equilibrium models for development policy, which highlighted the effects of changes in fiscal policy on income distribution during a specific year, without considering future economic trajectories [16] Another study presented a detailed framework for a static CGE model, demonstrating its utility in contemporary economic and policy analysis [17]. ...
This study formulates a mathematical dynamic Computable General Equilibrium (CGE) model within a rational expectations framework, adhering to neo-classical principles. It emphasizes the significant role of agents’ expectations in determining the broader economic trajectory over time. The model combines microeconomic and macroeconomic perspectives by merging the concept of intertemporal choice with savings behavior. Its mathematical foundations are derived and calibrated using data from a social accounting matrix to enhance its simulation capabilities. The paper presents a practical simulation investigating the economic implications of a strategic investment impact within an specific European region, Madrid as the case of study. Such demand shock affects sectors such as electronics, food, pharmaceuticals, and education. The study models the long-term effects of heightened investment and persistent demand-side shocks. The research demonstrates the CGE model’s ability to forecast economic shifts toward a new equilibrium after an investment shock, proving its utility for assessing the impacts of extensive environmental policies within a European context. The work’s originality lies in its detailed mathematical formulation, contributing to theoretical discourse and practical application in business analytics.
... 7) The model is a direct descendant of an early US Department of Agriculture model and follows trade principles from the 1-2-3 model (de Melo & Robinson, 1989;Devarajan et al., 1990). Refer to OECD (2015) for a detailed documentation of the model. ...
... The analysis uses the GLOBE computable general equilibrium model calibrated to version 9 of the data of the Global Trade Analysis Project (GTAP) with 2011 as the base year. The model is comparative static and is a member of a family of CGE models that model trade relationships using principles described in the 1-2-3 model (Devarajan et al., 1990;de Melo & Robinson, 1989) and standard multisectoral versions for developing countries (Dervis et al., 1982). ...
... The database is aggregated into six sectors (crops, livestock, mining, processed food, manufacturing, and services). The model is a member of a family of CGE models that models trade relationships using principles described in the 1-2-3 model (de Melo and Robinson, 1989;Devarajan, et al., 1990) or the standard multi-sectoral version for developing countries (Dervis, de Melo, and Robinson, 1982;and Lofgren et al., 2002). ...
... One strand of AGE models uses, in addition to Armington style imports, a CET transformation function that models the split of domestically produced goods into exported commodities and those destined for the domestic market. An advantage of this method is that it dampens the size of terms of trade effects that emerge in Armington models, seede Melo and Robinson (1989). ...
... Imports are modelled as imperfect substitutes for domestically produced goods and services (using CES functions) (Armington, 1969) as are exports (using constant elasticity of transformation functions) (de Melo and Robinson, 1989). The elasticities used are reported in the supplement (Appendix A). ...
Seasonality is a salient feature of rural livelihoods and particularly within agriculture the demand for labor varies with the seasons and weather. In low-income countries, agriculture employs almost two-thirds of the labor force and incomes from labor are a major determinant of welfare. Therefore, an appropriate model representation of rural labor markets is critical when analyzing agricultural and food policies. Economy-wide models are commonly used for ex-ante policy analysis, but have so far ignored the influence of seasonality, implicitly assuming separability of seasonal labor demand and supply. This study relaxes that assumption using a computable general equilibrium (CGE) model calibrated to the Bhutanese economy as an illustrative case. Using model setups with and without seasonal labor markets, a cereal export ban of India is simulated leading to higher import prices for Bhutan. Results demonstrate that neglecting the influence of seasons on rural labor markets systematically biases model results. Assuming homogeneity of labor units, i.e., allowing substitution across seasons, understates the impacts of policy changes on rural wage rates, distorts households' labor-leisure trade-off decisions and overstates agricultural supply response. Given the widespread use of economy-wide models, the results are important for understanding the implications of domestic and global policy changes for agriculture and welfare in developing economies.
... The analysis uses the GLOBE computable general equilibrium model calibrated to version 9 of the data of the Global Trade Analysis Project (GTAP) with 2011 as the base year. The model is comparative static and is a member of a family of CGE models that model trade relationships using principles described in the 1-2-3 model (de Melo and Robinson 1989;Devarajan et al. 1990) and standard multi-sectoral versions for developing countries (Dervis, de Melo, and Robinson 1982). ...
If trade tensions between the United States and certain trading partners escalate into a full-blown trade war, what should developing countries do? Using a global, general equilibrium model, this paper first simulates the effects of an increase in U.S. tariffs on imports from all regions to about 30 percent (the average non-Most Favored Nation tariff currently applied to imports from Cuba and the Democratic Republic of Korea) and retaliation in kind by major trading partners-the European Union, China, Mexico, Canada, and Japan. The paper then considers four possible responses by developing countries to this trade war: (i) join the trade war; (ii) do nothing; (iii) pursue regional trade agreements (RTAs) with all regions outside the United States; and (iv) option (iii) and unilaterally liberalize tariffs on imports from the United States. The results show that joining the trade war is the worst option for developing countries (twice as bad as doing nothing), while forming RTAs with non-U.S. regions and liberalizing tariffs on U.S. imports ("turning the other cheek") is the best. The reason is that a trade war between the United States and its major trading partners creates opportunities for developing countries to increase their exports to these markets. Liberalizing tariffs increases developing countries' competitiveness, enabling them to capitalize on these opportunities. JEL Classification: F13 F14 C68
... This approach is ideal for examining the whole of economy impact of a policy or other change. and NAFTA (Robinson et al., 1993) and follows trade principles deriving from the 1-2-3 model (de Melo and Robinson, 1989;Devarajan et al., 1990). The OECD SAM database derives from the GTAP V8 database (see Narayanan et al., 2012) and disaggregates imports based on use categories derived from OECD sources 3 , as opposed to the widely applied proportionality assumption. ...
Despite the predominately negative evidence of the impact of local content requirements on trade, they continue to play a significant role in trade policy. This has been particularly true since the financial crisis of 2008. The work presented here provides new evidence of the detrimental effects these policies have on the imposing country’s own economy. Most empirical studies have focused on the long run inefficiencies associated with LCRs, notably in the effected sector. This paper highlights the costs to other sectors in the economy, the different impacts on intermediate versus final demand, and the declines in trade in third-party economies, despite not engaging in direct trade with the imposing country. Economies imposing LCRs experience a decrease in exports in non-LCR effected sectors and a growing concentration of domestic activity in a few targeted sectors, undermining potential growth and innovation on a broader scale. The paper concludes by offering policy alternatives.
... The original model and a detailed documentation are available at http://www.cgemod.org.uk/ . Developing from the GLOBE model, the model is a direct descendant of an early US Department of Agriculture model (Robinson et al., 1990) and NAFTA (Robinson et al., 1993) and follows trade principles deriving from the 1-2-3 model (de Melo and Robinson, 1989;Devarajan et al., 1990). ...
Global trade imbalances narrowed in the aftermath of the global financial crisis. They have remained at a lower level but are still of concern to policy makers because of the risks they pose to individual economies, as well as globally. However, the ultimate causes of these imbalances are not fully clear. Current account positions reflect the gap between national saving and investment, which are in turn affected by policy distortions, including in trade policy. Simulations of the OECD’s METRO model show liberalisation of existing trade distortions would modestly narrow aggregate trade imbalances in the medium term for some countries. Reducing tariffs, non-tariff measures and the combined market access and productivityenhancing effects of pro-competitive measures in services all have some rebalancing potential. Liberalisation would also offer economically significant income gains for all countries. By contrast, narrowing trade imbalances using trade restrictions would come at disproportionately high economic costs for all countries.
... and NAFTA (Robinson et al., 1993) and follows trade principles from the 1-2-3 model (de Melo and Robinson, 1989;Devarajan et al., 1990). Namely, these models divide an economy into tradable and non-tradable goods and link domestic and world prices through the tradable sectors. 1 The model is calibrated using an augmented Social Accounting Matrix (SAM) version of the GTAP database (for v8 see Narayanan et al., 2012), described in more detail below. ...
The OECD Trade Model, METRO, is a computable general equilibrium (CGE) model derived from the Social Accounting Matrix (SAM) based CGE model GLOBE developed by Scott McDonald and Karen Thierfelder using GAMS software. Namely, the model divides an economy into tradable and non-tradable goods and link domestic and world prices through the tradable sectors. The model is calibrated using an augmented Social Accounting Matrix (SAM) version of the GTAP database. The novelty and strength of METRO lies in the detailed trade structure and the differentiation of production and consumption commodities by use – intermediate, household, government and capital consumption. The differentiation of commodity supply, and thus the resulting trade flows, by use category improves the ability to depict and analyse, amongst other things, global value chains (GVCs). In addition this structure allows the modelling of policy instruments targeting specific uses, such as resource-based restrictions, local content requirements, and government consumption.
Document available at http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=TAD/TC/WP%282014%2924/FINAL&docLanguage=En
... The Model is derived from the Social Accounting Matrix (SAM) based CGE model GLOBE developed by Scott McDonald and Karen Thierfelder (2013). 3 The model is a direct descendant of an early US Department of Agriculture model and NAFTA (Robinson et al., 1993) and follows trade principles deriving from the 1-2-3 model (de Melo and Robinson, 1989;Devarajan et al., 1990). ...
Non-tariff measures (NTMs) can cover a wide range of instruments that are implemented at the border or behind–the-border, ranging from import prohibitions and quotas, export restrictions, non-automatic import licensing, to customs and other administrative-related requirements. This is clearly a very diverse mix that warrants different approaches to incorporate NTMs into policy models. This document presents the modelling techniques currently available in the OECD METRO model. More particularly, it introduces and describes in detail three methods which are new to METRO, namely the ‘iceberg cost’ approach, the ‘willingness to pay’ module, as well as tariff rate quotas on imports and exports.
In addition, this paper details how ad valorem equivalents (AVEs) for the OECD Trade Facilitation Indicators (TFIs) are derived and incorporated into the METRO model. The TFIs cover the full spectrum of administrative procedures at the border for more than 160 countries worldwide is an NTM type comprehensive dataset to be incorporated into the METRO database.
Paper available under http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=TAD/TC/WP%282016%2920/FINAL&docLanguage=En
... The database is aggregated into six sectors (crops, livestock, mining, processed food, other manufacturing, and services). The model is a member of a family of CGE models that models trade relationships using principles described in the 1-2-3 model (de Melo & Robinson, 1989;Devarajan, Lewis, & Robinson, 1990) and in standard multi-sectoral version for developing countries (Dervis, de Melo, & Robinson, 1982;Lofgren et al., 2013). ...
As a result of antimicrobial resistance (AMR), economies will experience an increase in mortality, reduced productivity for labor and the livestock sector, and increased health care costs. This paper assesses the potential global poverty impacts of AMR using a unique macro-micro framework. To estimate poverty effects of AMR, price, wage, and employment results from a dynamic, multi-country, multi-sector computable general equilibrium CGE model are used in a microsimulation model that integrates household surveys from 104 countries. The analysis in this paper advances other studies of AMR in two ways: (1) it links macro results to a microsimulation model to provide insight on poverty impacts for the world economy and countries of different income levels; and (2) it uses a global multi-sector model, rather than an aggregate global model, to generate macroeconomic results with structural details for capturing the economy-wide impact within countries and the spread across countries via trade flows. Relative to a world without AMR, the progression of antimicrobial resistance is expected to make it more difficult to eliminate extreme poverty, potentially adding 24.1 million people to become extremely poor, of whom 18.7 million live in low-income countries. The expected losses during 2015-50 may sum to 23 trillion in global exports (in present value). By 2050, the global gross domestic product could deviate negatively by 3.8 percent from the baseline (in the worst-case scenario considered). Because it is a global public bad, the optimal policy response will require global cooperation. The poverty outcomes induced by AMR in all country groups will deteriorate with shortsighted isola-tionist policies. Moreover, assistance from high-income countries to improve the economic resiliency of lower-income countries will also benefit the higher-income countries and world economy in general.
... Developing from the GLOBE model, the model is a direct descendant of an early US Department of Agriculture model and NAFTA (Robinson et al., 1993) and follows trade principles deriving from the 1-2-3 model (de Melo and Robinson, 1989;Devarajan et al., 1990). The database of the model is based on the year 2011. ...
Switzerland’s overarching agricultural policy objectives reflect societal concerns about various production aspects of agriculture, such as environmental sustainability and animal welfare, and the expectation that agriculture will provide public goods demanded by society. Among the various policy instruments used by Switzerland to achieve these objectives, border protection represents a significant component of support. This study assesses the relevance of border protection for agriculture in Switzerland. It finds that border protection is not relevant for achieving the overarching objectives of Swiss agricultural policy, with one exception. By stimulating domestic production, high levels of border protection ensure that Switzerland meets its target rate of gross food production. But border protection is unlikely to deliver the other outcomes and public goods desired by Swiss society. This is because support provided through border protection is not conditional on delivery of the outcomes and public goods demanded by Swiss society, and is untargeted towards the activities, inputs and regions most strongly related to those outcomes and public goods. Moreover, border protection imposes significant costs on the Swiss economy. The study concludes by proposing alternative policies in place of border protection.
... 8 A good example is Dervis, Melo and Robinson (1982) which uses the Armington specification in a computable general equilibrium (CGE) model, which has become a standard model for policy analysis. See also Melo and Robinson (1989) for a more detailed discussion of its use in CGEs. For examples of its use in a partial equilibrium framework, see the series of studies to measure the social cost of protection in several countries, started by Hufbauer and Elliot (1994) and sponsored by the Institute of International Economics, Washington, D.C. and that domestic demand for each sector is supplied by a composite good which is a CES ( Elasticity of Substitution) aggregation of domestically produced and imported goods. ...
In this article we estimate substitution elasticities for goods distinguished
by place of production, specifying whether they are imported or produced
domestically. These are known as the Armington (1969) elasticities and are widely used to assess the impact on the domestic economy of policy changes in countries’ tariff structures; and, in particular, to evaluate the
costs and benefits of signing free trade agreements. The sample period for our study is 1986-2002, and the estimation is done separately for each of the 28 industrial sectors specified in the Brazilian input-output table.
Special consideration is given to the fact that the data is affected by import restrictions for part of that period, and that foreign trade liberalization occurred in Brazil in 1990. The estimation procedure is automated and
takes into consideration the stochastic dynamic properties of the quantity and price series, using the appropriate estimation approach in each case. The Armington elasticities we estimate have the correct sign, and are significant at the 5% level for 20 sectors, at 10% for two sectors, and at 20% for two others. In one sector the estimated value is significant, but has the incorrect sign (negative). For three sectors the estimated elasticity is not significantly different from zero; but these represent only 12% of the average value of total import value in the period 1997-2002. The point estimate of the elasticity of substitution, for the sectors where it is positive and statistically different from zero, varies from 0.16 to 3.6; and its weighted average value is 0.93.
... 8 A good example is Dervis, Melo and Robinson (1982) which uses the Armington specification in a computable general equilibrium (CGE) model, which has become a standard model for policy analysis. See also Melo and Robinson (1989) for a more detailed discussion of its use in CGEs. For examples of its use in a partial equilibrium framework, see the series of studies to measure the social cost of protection in several countries, started by Hufbauer and Elliot (1994) and sponsored by the Institute of International Economics, Washington, D.C. and that domestic demand for each sector is supplied by a composite good which is a CES ( Elasticity of Substitution) aggregation of domestically produced and imported goods. ...
In this article we estimate substitution elasticities for goods distinguished by place of production, specifying whether they are imported or produced domestically. These are known as the Armington (1969) elasticities and are widely used to assess the impact on the domestic economy of policy changes in countries’ tariff structures; and, in particular, to evaluate the costs and benefits of signing free trade agreements. The sample period
for our study is 1986-2002, and the estimation is done separately for each of the 28 industrial sectors specified in the Brazilian input-output table. Special consideration is given to the fact that the data is affected by import restrictions for part of that period, and that foreign trade liberalization occurred in Brazil in 1990. The estimation procedure is automated and takes into consideration the stochastic dynamic properties of the quantity and price series, using the appropriate estimation approach in each case. The Armington elasticities we estimate have the correct sign, and are
significant at the 5% level for 20 sectors, at 10% for two sectors, and at 20% for two others. In one sector the estimated value is significant, but has the incorrect sign (negative). For three sectors the estimated elasticity is not significantly different from zero; but these represent only 12% of the average value of total import value in the period 1997-2002. The point estimate of the elasticity of substitution, for the sectors where it is positive and statistically different from zero, varies from 0.16 to 3.6; and its weighted average value is 0.93.
... accommodates the empirical observation that a country imports and exports the same good (socalled cross-hauling); (ii) it avoids over-specialisation implicit to trade in homogeneous goods; and (iii) it is consistent with trade in geographically differentiated products. While the Armington assumption provides a convenient lens to view trade data, it may lead to unrealistically strong terms-of-trade effects that dominate the welfare results of policy changes (de Melo & Robinson, 1989). 3,4 An example of the dominance of the Armington assumption in model-based climate policy and trade analysis is provided by the Energy Modelling Forum (EMF) study 29, which drew together 12 worldwide established CGE modelling groups to investigate the role of border carbon adjustments. ...
Alternative perspectives on the structure of international trade have important implications for the evaluation of climate policy. In this paper, we assess climate policy in the context of three important alternative trade formulations. First is a Heckscher-Ohlin model based on trade in homogeneous products, which establishes the traditional neoclassical view on comparative advantage. Second is an Armington model based on regionally differentiated goods, which is a popular specification for numerical simulations of trade policy. Third is a Melitz model based on monopolistic competition and firm heterogeneity. This heterogeneous-firms framework is adopted in many contemporary theoretic and empirical investigations in international trade. As we show in this paper, the three alternative trade formulations have important implications for the assessment of climate policy with respect to competitive effects for energy-intensive production (and hence carbon leakage) as well as the transmission of policy burdens across countries.
... The database is aggregated into six sectors (crops, livestock, mining, processed food, manufacturing, and services). The model is a member of a family of CGE models that models trade relationships using principles described in the 1-2-3 model (de Melo and Robinson, 1989;Devarajan, et al., 1990) or the standard multi-sectoral version for developing countries (Dervis, de Melo, and Robinson, 1982;and Lofgren et al., 2002). ...
... This is modeled by treating supply and demand by the " rest of the world " (row, i.e. countries that are not considered relevant for the soe analysis) as perfectly elastic. Corner solutions are avoided through the assumption that output destined for the domestic and export markets are differentiated products (see De Melo and Robinson, 1989). 6 Therefore, from the perspective of a given region, the impact of policy evaluated in gmr and soe models will differ through their impact on the terms of trade. ...
This paper describes the implementation in the General Algebraic Modeling Language (GAMS) of an economic equilibrium model based on the Global Trade Analysis Project (GTAP) dataset. We call this model and the ancillary programming tools GTAPinGAMS. Relative to previous installments of GTAPinGAMS, an innovation in this model is that it can easily switch between global multiregional (GMR) and small open economy (SOE) closures. We also include the possibility to evaluate results for alternative representations of final demand, based on Cobb-Douglas, linear expenditure system or constant difference in elasticities demand systems. In this paper we outline the model structure, document the associated equilibrium conditions and describe computer programs which calibrate the model to the desired regional and sectoral aggregation from the GTAP 9 dataset. We perform a few calculations which illustrate how alternative structural assumptions influence the policy conclusions derived from the model.
... The OECD Model "METRO" is a computable general equilibrium model (CGE) derived from the Social Accounting Matrix (SAM) -based CGE model GLOBE developed by McDonald, Thierfelder and Walmsley (2013). METRO is a direct descendant of an early US Department of Agriculture model and NAFTA (Robinson et al., 1993) and follows trade principles deriving from the 1-2-3 model (de Melo and Robinson, 1989;Devarajan et al., 1990). ...
Brazil remains a fairly closed economy, with small trade flows relative to its share of world income. This paper explores the effects of three possible policy reforms to strengthen Brazil’s integration into global trade: a reduction in import tariffs, less local content requirements and a full zero-rating of exports in indirect taxes. A simulation analysis using the OECD Multi-Region Trade CGE model suggests that current policies are holding back exports, production and investment in Brazil. The model simulations suggest significant scope for trade policy reforms to strengthen industrial development and export competitiveness. Results also show that the expansion of investment and production would be accompanied by significant employment gains. Moreover, employment growth is higher for low-skilled occupations, implying that a major trade and tax policy reform aiming at liberalising trade flows would particularly help those at the lower end of the income distribution.
... In the case of Egypt, the elasticity of substitution between production and non-production labor is assumed to be 0.5. 7 De Melo and Robinson (1989) show that models that allow product differentiation are well behaved under a small open economy assumption; in effect the economy is a price taker at the level of aggregate trade flows and each region's aggregation is sufficiently distinctive to support the Armington assumption. and foreign markets (exports). ...
... 5 The result is a 16-country/region, 12sector global CGE model, calibrated over a 24-year time path from 2001 to 2025. Apart from its traditional neoclassical roots, an important feature of this model is product differentiation, where we specify that imports is differentiated by country of origin and exports are differentiated by country of destination (Armington 1969, de Melo andRobinson 1989). This feature allows the model to capture the pervasive phenomenon of intra-industry trade, where a country is both an importer and exporter of similar commodities, and avoids tendencies toward extreme specialization. ...
With the emergence of People's Republic of China (PRC) and India, the economic landscape of Asia and its relation to the global economy have changed. Using a new dynamic global model, we present forecasts for Asian expansion over 2025. These baseline growth forecasts elucidate shifting patterns of regional specialization and their consequences for growth and structural change in the Asian economies. The central role of trade is examined through analysis of a variety of hypothetical global and regional trade agreements. Our results indicate that trade within the Asian region is far from reaching its potential, and policies that facilitate integration and more efficient regional trade can accelerate growth, especially for lower-income Asia. A deeper and more inclusive Asian free trade area can achieve for its members large benefits. As an emerging growth bridge between the PRC and India, economies of the Association of Southeast Asian Nations have the most to gain from Asian economic integration.
When we focus on empirical assessments of the linkages between trade and economic performance, two approaches stand out. One follows the path of application of econometric techniques to examine the historical record. In the area of international economics and growth, this includes, for example, the now extensive cross-country growth literature. It also includes the literature on globalization and labour markets, the literature on technology spillovers and the literature on linkages between international capital markets and national performance. The second path involves the use of calibration models. Small calibrated computable general-equilibrium (CGE) models (often with a only single goods sector, and almost exclusively without intermediate linkages) are applied extensively in the real business cycle literature. Large calibrated general-equilibrium models are used in the assessment of issues ranging from global trade liberalization to domestic tax reform and global-warming related emissions taxes. This second set of models is characterized by more complexity on the real side of the economy, usually with sector interaction through both intermediate goods and competition for primary factors of production.KeywordsGeneral EquilibriumTrade PolicyTrade LiberalizationAdjustment CostComputational General Equilibrium ModellingThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
Forcação e evolução do Planejamento Regional no Brasil
Formação e evolução do Planejamento Regional no Brasil
CGE models are increasingly being used to inform economic policy analyses in South Africa. This paper is an attempt to improve the accessibility of the approach by providing a minimalist CGE model for the South African economy. The strengths and weaknesses of this minimalist CGE are determined by using it to simulate South Africa’s tariff reform programme. The results are consistent with theoretical and empirical research on trade liberalisation, and the model provides justification for these aspects in the government’s recently announced macroeconomic strategy. The weaknesses of the minimalist model are such however, that the need for a large-scale multisectoral model remains. The primary use of the minimalist CGE model lies in its suitability as a pedagogical tool. For this purpose, the spreadsheet version of the model is available from the authors.
This study establishes a multi-sector dynamic computable general equilibrium framework that integrates energy intensity module to explore the reverse feedback effect of energy intensity control on industry structure. The results indicate that (1) the tightening effect of energy intensity constrains on the Industrial sector is most significant, followed by the Tertiary Industry, with the least impact on Agriculture; (2) when there is no technological progress in the departments, the change of industrial structure is mainly reflected in the sharp decline in the proportion of Industry and the significant increase in the proportion of Tertiary Industry. When technological progress exists in high energy-consumption departments, the tightening effect of energy intensity constraints on the industrial sector will be reduced; when there is technological progress in all departments, the industrial structure will have a smaller change, and the technology progress can alleviate the tightening effect of the energy intensity target on various sectors; (3) under the constraint of energy intensity, the high energy-consuming industry shifts to the Equipment Manufacturing with low energy-consumption and high-added value. The increasing proportion of Tertiary Industry mainly comes from two industries including Wholesale, Retail, Hoteling and Catering, and Transportation, Storage, and Post.
This paper contributes to the ongoing discussion about the domestic, economic and social consequences of taxing agricultural exports in Argentina. Nogues (2008) conducted a partial equilibrium analysis pointing out the negative consequences of export taxes for GDP, the unemployment rate and poverty. Cicowiez et al. (2009) used a CGE-model for the Argentinean economy, choosing 2005 as the base year, and showed that the elimination of export taxes on agricultural products had negative effects on GDP, unemployment and poverty. They argued that their results differed from Nogues (2008) because by using a CGE model they were taking into account the general equilibrium effects of the export taxes. Like Cicowiez et al. (2009), we used the static standard-CGE-model presented in Lofgren et al. (2002). Due to data availability problems we had to use the year 2000 as the base year. We simulated the implementation of the export tax structure of 2007, including the ad valorem equivalents of quantitative export restrictions. Our results tend to confirm those obtained by Nogues (2008). We show that the export taxes and quantitative export restrictions that were in place in 2007 have strong negative effects on overall GDP, unemployment and household welfare.
Environmental sustainability has gained increasing attention in recent years due to the evident impacts of rapid economic growth and urbanisation. Efficient resources and utility management is one of the vital strategies to minimise waste/losses, pollution and extraction of virgin resources. It facilitates the development of a circular economy. This review discusses the cross-disciplinary approaches devoted to clean technologies, process modelling, monitoring and management framework in the effort to mitigating GHG, air (causing, e.g. smog/haze) and water pollution. The review focuses on the roles of (a) Energy and water management, (b) Waste management and (c) Green policy and pollution minimisation strategies. Each section is divided into two sub-sections starting with the introduction on the assessed areas, followed by the sections based on the latest contribution of a Special Volume and the proposed direction for future research. This review suggests (i) More studies based on case studies in real life context and prototypes involving consensus building among the stakeholders, proven by viable economic feasibility analyses, are needed to enable environmental sustainability. (ii) Data availability, enabling policy and cost of investment is the common barrier to put the proposed solutions or methodologies into practice. (iii) Substantial improvement of environmental sustainability can be benefited through the waste (solid, water, heat) recovery.
Quantifying the economy-wide impacts of trade facilitation and disentangling the channels through which trade facilitation reform can benefit the global economy represent an analytical challenge given the complexity of the underlying issues. This report assesses how specific border procedures impact the operation of supply chains and the resulting policy implications, using the OECD Trade Facilitation Indicators (TFIs) database and the OECD METRO model. The OECD TFIs are incorporated within the METRO model using a novel methodological approach, which accounts for both supply and demand side gains triggered by trade facilitation improvements.
Report available at http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=TAD/TC/WP(2016)15/FINAL&docLanguage=En
This paper provides estimates of elasticities of substitution between domestic and imported goods for 40 4-digit S.I.C. food manufacturing industries and explains the inter-industry differences among these coefficients in terms of industry sectoral characteristics. The results show that there is a wide range of variation among such elasticities and that the intensity of each industry’s percentage of output sold to final consumers, foreign direct investment, expenditures on advertising and the existence of import quotas affect the degree of substitutability between domestic and foreign goods in the face of a relative price change.
Nowadays, agricultural prices are highlighted combined with, as alleged collateral effects, hunger and malnutrition in Sub-Saharan Africa (SSA). However, today, SSA has around 47,5 percent of rural population in extreme poverty and between 1990 and 2005 when the food prices was stable and with low prices, extreme poverty in SSA involved around 64.6 percent. We assumed that the undernourishment or starvation continued in SSA because there the misery persisted. Poverty reduction is the only way to the end the hunger in Africa. Also, for an agricultural country in SSA – without significant mineral resources – the best way to solve the problem of poverty is through agricultural development. Our sample are nine countries in SSA – Burundi, Ghana, Malawi, Mozambique, Rwanda, Uganda, United Republic of Tanzania, Zambia and Zimbabwe – the so called SSA – 9. Thus, we built up a recursive model that answered how the agricultural gears in SSA – 9 were moving between 1990 and 2005, as well as assessed how the agriculture could reduce rural poverty. As a result we saw that the main tools that had a strong relation with poverty reduction in SSA – 9 are some policies implications as; property rights, access to the credit system, human capital and infrastructure.
These are revolutionary times in the global economy. The lives of workers in different parts of the world are increasingly intertwined. The embrace of market–based development strategies by many developing and post–centrally planned economies, the opening of international markets, and great advances in the ease with which goods, capital, and ideas flow around the world are bringing new opportunities to billions of people. Are these favorable developments from the point of view of the economies of the Middle East and North Africa? The stakes are clearly high. During the 1970s and early 1980s labor migration and official aid were sources of growth. Now, other sources of foreign exchange will have to be found to finance import needs. The globalization of trade promises to open new markets, but it also increases competition. East Asia’s export–led boom started in the 1970s when
This article develops a mechanism to measure the impact of local content requirements as quantitative restrictions. We compare effects of the novel quantitative approach to the effects of a tariff equivalent, which is more traditionally used to analyse these types of policies. Local content requirements increase output and value added in the affected sector, but at the expense of other sectors, leading to declines in GDP and trade across the economy. Comparing the two modelling approaches, the differences in outcomes are shown to be significant.
This paper explores the feasibility of the ASEAN Economic Community (AEC) moving forward to the next step of economic integration, i.e., towards an ASEAN Customs Union (ACU) post-2015. Effectively, the way to progress towards an ACU is by forming it among ASEAN-9 members with Singapore maintaining its existing zero tariffs against non-members, thereby creating a Partial ACU. Using applied general equilibrium modeling exercise based on GTAP, the findings suggest that there are potential net positive welfare gains to be collectively reaped by ASEAN if it moves from an AFTA to a partial ACU post-2015. However, not all ASEAN members will individually gain from such an ACU and members may need to devise a feasible mechanism wherein some member country welfare losses in an ACU can be compensated by the members who gain. The paper argues that in spite of political economy challenges due to ASEAN’s unique characteristics and diversity in the levels of economic development among members, such a Partial ACU could be considered by ASEAN leaders due to its strategic imperatives.
On the basis of liberalization experiences in many countries, there has been an increasing concern about the investment response to a process of liberalization, as summarized in, for example, Serven and Solimano (1993). Since the main reason governments embark on trade liberalization programs is to increase the productive capacity of the economy over time, a shortage of investment may prevent the expected favorable growth outcome.
Bangladesh grew very slowly when it was a part of Pakistan and its growth scarcely accelerated after independence in 1971. Poor overall performance reflects poor agricultural productivity, for agriculture is still the dominant economic sector, providing livelihood for some 80 per cent of the population. This study is concerned with the reasons for the low growth of agriculture and the economy more generally. Since farmers in Bangladesh, like farmers in most countries, are responsive to the prices that face their production and consumption decisions, the study evaluates the effects of
indirect (macro and trade) and direct (sectoral) prices on agricultural development and economic development more generally. The evaluation is carried out in a general equilibrium context. A 25-sector and 35-commodity computable general equilibrium model, with a single representative private consumer, is used to analyse the impact of price policies. Aggregate disposable income accruing to the
representative household is divided into two components: farm income and non-farm income. The model is essentially neo-classical with some adaptations to represent the structural and institutional features of the Bangladesh economy. Particular care has been taken to model production technology in agriculture. An econometric study using a system approach
was carried out to determine the technology structure in agriculture and estimate the output supply and input demand elasticities of farmers. The experiments which simulate technological growth in agriculture also emphasise the role of agriculture in the overall economic development of Bangladesh. Increased investment in rural infrastructure, especially water control and transportation, brings about marked improvement in the choice of crops and production techniques, and hence in the agricultural sector as well as the economy as a whole. The constraining effect of
inappropriate indirect (macro and trade) policies currently prevents the transfer of resources into agriculture. When trade reforms are simulated so that scarcity premia and tariffs are removed/reduced, agricultural performance improves as production costs fall. If the currency is
depreciated agricultural and other export profitability rises, also attracting
increased investment into these sectors.
Not unexpectedly, short-run simulations of policy reforms show less impressive growth than long-run simulations. In both the short and the long run,in accordance with the results of other studies of the agricultural sector in many developing countries, indirect policies appear to have a greater
impact on agricultural productivity and output than direct policies. Direct policies do not offset the bias against agriculture created by indirect policies, but their removal would exacerbate the problems faced by agriculture if indirect policies were not reformed. In the short run, public investment in agricultural infrastructural facilities would be needed if the indirect and direct reforms were to be fully utilized. The budgetary expenditure at present expended on agricultural subsidies could be used for such public investment. In the long run, rising agricultural profitability would then be likely to attract private capital to the sector.
This contribution examines the impact of general economic policies - exchange-rate policy, fiscal policy, and trade policy - on agriculture. Both, the theoretical analysis of important transmission mechanisms and the empirical analysis of alternative adjustment policies to reestablish balance-of-payments equilibrium - real-exchange-rate depreciation versus import restrictions-are based on a general equilibrium framework. The simulations for Malaysia show that both adjustment strategies support agriculture. Moreover, the price adjustments induced by the adjustment policies improve the income distribution in favor of agriculture. However, this result would change dramatically, if import restrictions refer only to industrial goods. The 60s and 70s when most developing countries relied on forced import substitution provide ample evidence on the harmful effects of such a policy for agriculture.
As it does for many domestic industries, the United States protects domestic meat producers from foreign competition by limiting imports. In this paper, the history and operation of the restraints are described and estimates made. of their effects on the U.S. economy using a computable general equilibrium model. If import restraints on red meat had not been in force in 1991. U.S. economic welfare would have been greater by an estimated 75-180 million. Estimates are also made for the six industries likely to be most affected by the restraints either directly or indirectly and for nine broad industry sectors comprising, collectively, the remainder of the U. S. economy. [F13].
This chapter reviews the experience of computable general equilibrium (CGE) models from the perspective of how they have, or have not, influenced public policy in developing countries. The paper describes different classes of empirical models – from small, stylized to large, multisectoral applied models; from static equilibrium models to dynamic, perfect-foresight models – and identifies the characteristics of models best suited to address different policy problems in developing countries. The paper then discusses the different ways CGE models have been and are being used in policy formulation, the types of questions they have addressed, and the lessons learned from past experience. Finally, the paper suggests that, in light of the changing nature of policy making in developing countries, in the future CGE models should be used differently, moving from a purely technocratic exercise used by policy makers to providing an accessible empirical framework that can contribute to a widespread public debate.
Presents theories and a range of applications of macroeconomic models to support the type of policy analysis that is the concern of Ministries of Planning in developing countries. In five parts, 1) theory and applications of input-output models and considers their limitations in policy contexts, and includes empirical applications; 2) non-linear computable general equilibrium models in which prices are determined endogenously, and includes trade and product differentiation extensions to the basic models; 3) microeconomic linkages in CGE models, and the resulting macroeconomic policy implications; 4) applies the extended model to the Turkish economy as a case study; 5) assesses the use of such models in the analysis of develoment strategies and the distribution of income. It shows how economically and politically feasible policy is influenced by the economy's initial condition, social structure and distribution of political power.-A.L.Creese
IN THIS PAPER we define the elasticity of transformation analogously with the elasticity of substitution. We derive the family of CET (constant elasticity of transformation) production possibility schedules which (not surprisingly) turn out to be algebraically identical with CES isoquants, apart from a difference of sign determining their concavity.2 We show that a given, constant, elasticity of transformation is compatible with product-neutral and product-biased shifts in the location of the frontier, pointing out that CET model therefore is of potential value in the analysis of technical change.3 Finally, we suggest a possible application of the CET model in the empirical analysis of supply, quoting by way of illustration the results of an empirical three-sector agricultural supply model fitted to post war Australian data.
This book provides a much needed quantitative response to the classic question of who gains and who loses in trade liberalization and shows how important the process is for the global economy. It contributes significantly to the debate concerning trade between developed and developing countries. John Whalley describes and uses a numerical general equilibrium model of world trade to explore issues in the area of trade liberalization among major world trading areas - the European Economic Community, the United States, Japan, and developing countries. His book is unique both in using this framework to analyze world trading patterns, and in considering a number of trading areas simultaneously within the same model. It is able to quantify the merits of alternative actions in international trade policy, the ways that the interests of the EEC, the United States, and Japan are similar and ways in which they differ, and show how the interests of less developed countries are affected by various trade liberalization initiatives. Part I provides a description of the model, data sources and adjustments to basic data, and methods for specification and solution of the model. Part II presents results from model applications along with policy conclusions. Applications include analysis of tariff cutting formulae in the Toyko Round, an evaluation of the Tokyo Round trade agreement, examination of incentives for a retaliatory trade protection 'war' between world trade blocs, and analysis of the impact of protectionist policies on North-South trade.
This paper examines formulations of external sector behavior adopted in some of the recent applied general equilibrium models. In many cases these models are constructed for single economies and the model-builder attempts to use a convenient external sector specification to close the model. Issues and difficulties with export demand and import supply functions for foreigners which satisfy trade balance, and the modeling of small economy price taking behavior are explored.
Aggregation Theorem Import Demand and Export Supply: An Melo Product Dependence of the Domestic Price System in Computable General Equilibrium Trade Models
- R W Jones
- E Berglas
Jones, R. W. and E. Berglas, 1977, Aggregation Theorem , American Economic Review, 67, 183-7. Import Demand and Export Supply: An Melo, J. de and S. Robinson, 1985, Product Dependence of the Domestic Price System in Computable General Equilibrium Trade Models, in T. Peeters, et al, eds. International Trade and Exchange Rates, 91-107, Differentiation and Trade (North-Holland, Amsterdam)
Product differentiation and trade dependence of the domestic price system in computable general equilibrium trade models
- J Melo
- S De
- Robinson
Melo, J. de and S. Robinson, 1985, Product differentiation and trade dependence of the domestic price system in computable general equilibrium trade models, in: T. Peeters, et al., eds. International trade and exchange rates, 91-107 (North-Holland, Amsterdam).
Exchange Rate-Based Disinflation, Wage Rigidity, and Capital Inflows: Tradeoffs for Chile
- David Tarr
David Tarr
WPS146 Exchange Rate-Based Disinflation, Wage
Rigidity, and Capital Inflows:
Tradeoffs for Chile 1977-81
Product differentiation and trade dependence of the domestic price system in computable general equilibrium trade models
- Melo