How confident can we be of CGE-based assessments of Free Trade Agreements?
AbstractComputable General Equilibrium models, widely used for the analysis of Free Trade Agreements (FTAs) are often criticized for having poor econometric foundations. This paper improves the linkage between econometric estimates of key parameters and their usage in CGE analysis in order to better evaluate the likely outcome of a FTA for the Americas. Our econometric work focuses on estimation of the elasticity of substitution among imports from different countries, which is especially critical for evaluating the positive and normative outcomes of FTAs. We match the data in the econometric exercise to the policy experiment at hand. Then we sample from the distribution of parameter values given by our econometric estimates in order to generate a distribution of model results, from which we can construct confidence intervals. We conclude that there is great potential for combining econometric work with CGE-based policy analysis in order to produce a richer set of results that are likely to prove more satisfying to the sophisticated policy maker.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 24 (2007)
Issue (Month): 4 (July)
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Web page: http://www.elsevier.com/locate/inca/30411
Other versions of this item:
- Hertel, Thomas & David Hummels & Maros Ivanic & Roman Keeney, 2003. "How Confident Can We Be in CGE-Based Assessments of Free Trade Agreements?," GTAP Working Papers 1324, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
- Thomas Hertel & David Hummels & Maros Ivanic & Roman Keeney, 2004. "How Confident Can We Be in CGE-Based Assessments of Free Trade Agreements?," NBER Working Papers 10477, National Bureau of Economic Research, Inc.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
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