Advanced Search
MyIDEAS: Login to save this article or follow this journal

Disaggregated data and trade policy analysis: The value of linking partial and general equilibrium models

Contents:

Author Info

  • Narayanan, Badri G.
  • Hertel, Thomas W.
  • Horridge, J. Mark

Abstract

Computable General Equilibrium (CGE) models are now routinely utilized for the evaluation of trade policy reforms, yet they are typically quite highly aggregated, which limits their usefulness to trade negotiators who are often interested in impacts at the tariff line. On the other hand, Partial Equilibrium (PE) models, which are typically used for analysis at disaggregate levels, deprive the researcher of the benefits of an economy-wide analysis, which is required to examine the overall impact of broad-based trade policy reforms. Therefore, a PE-GE, nested modeling framework has the prospect of offering an ideal tool for trade policy analysis. In this paper, we develop a PE model that captures international trade, domestic consumption and output, using Constant Elasticity of Transformation (CET) and Constant Elasticity of Substitution (CES) structures, market clearing conditions and price linkages, nested within the standard GTAP model. In particular, we extend the welfare decomposition of Huff and Hertel (2001) to this PE-GE model in order to contrast the sources of welfare gain in PE and GE analyses. To illustrate the usefulness of this model, we examine the contentious issue of tariff liberalization in the Indian auto sector, using PE, GE and PE-GE models. Both the PE and PE-GE models show that the imports of motorcycles and automobiles change drastically with both unilateral and bilateral tariff liberalization by India, but the PE model does a poor job predicting the overall size and price level in the industry, post-liberalization. On the other hand, the GE model overestimates substitution between regional suppliers due to "false competition" and underestimates the welfare gain, due to the problem of tariff averaging in the aggregated model. These findings are shown to be robust to wide variation in model parameters. We conclude that the linked model is superior to both the GE and PE counterparts.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VB1-4YDTRYJ-1/2/82c393f056f6e131833551f9242487b7
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 3 (May)
Pages: 755-766

as in new window
Handle: RePEc:eee:ecmode:v:27:y:2010:i:3:p:755-766

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: CGE modeling Trade policy Partial Equilibrium India Auto industry;

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Young, Leslie & Magee, Stephen P, 1986. "Endogenous Protection, Factor Returns and Resource Allocation," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 407-19, July.
  2. Boussard, Jean-Marc & Gerard, Francoise & Piketty, Marie Gabrielle & Ayouz, Mourad & Voituriez, Tancrede, 2006. "Endogenous risk and long run effects of liberalization in a global analysis framework," Economic Modelling, Elsevier, vol. 23(3), pages 457-475, May.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  4. Rod Tyers & Yongzheng Yang, 2004. "The Asian Recession and Northern Labour Markets," The Economic Record, The Economic Society of Australia, vol. 80(248), pages 58-75, 03.
  5. Olarreaga, Marcelo & Soloaga, Isidro, 1998. "Endogenous Tariff Formation: The Case of Mercosur," World Bank Economic Review, World Bank Group, vol. 12(2), pages 297-320, May.
  6. Noel Gaston & Daniel Trefler, 1994. "Protection, trade, and wages: Evidence from U.S. manufacturing," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(4), pages 574-593, July.
  7. James Anderson, 1995. "Trade Restrictiveness Benchmarks," Boston College Working Papers in Economics 290., Boston College Department of Economics.
  8. Ray, Edward John, 1987. "The Impact of Special Interests on Preferential Tariff Concessions by the United States," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 187-93, May.
  9. Nicolas Herault, 2007. "Trade Liberalisation, Poverty and Inequality in South Africa: A Computable General Equilibrium-Microsimulation Analysis," The Economic Record, The Economic Society of Australia, vol. 83(262), pages 317-328, 09.
  10. Arndt, Channing & Robinson, Sherman & Tarp, Finn, 1999. "Parameter estimation for a computable general equilibrium model: a maximum entropy approach," TMD discussion papers 40, International Food Policy Research Institute (IFPRI).
  11. Huff, Karen & Thomas W. Hertel, 2001. "Decomposing Welfare Changes in GTAP," GTAP Technical Papers 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  12. Madsen, Bjarne & Jensen-Butler, Chris, 2004. "Theoretical and operational issues in sub-regional economic modelling, illustrated through the development and application of the LINE model," Economic Modelling, Elsevier, vol. 21(3), pages 471-508, May.
  13. James E. Anderson, 2009. "Consistent Trade Policy Aggregation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 903-927, 08.
  14. Hertel, Thomas & Keeney, Roman & Ivanic, Maros & Winters, Alan, 2007. "Why Isn’t the Doha Development Agenda More Poverty Friendly?," GTAP Working Papers 2292, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  15. James E. Anderson & J. Peter Neary, 2003. "The Mercantilist Index of Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 627-649, 05.
  16. Anderson, James E & Neary, J Peter, 1992. "A New Approach to Evaluating Trade Policy," CEPR Discussion Papers 683, C.E.P.R. Discussion Papers.
  17. Badri Narayanan G., 2010. "Determinants of Competitiveness of the Indian Auto Industry," Working Papers id:2713, eSocialSciences.
  18. Peter J. Lloyd & Donald Maclaren, 2004. "Gains and Losses from Regional Trading Agreements: A Survey," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 445-467, December.
  19. Bach, Christian F. & Martin, Will, 2001. "Would the right tariff aggregator for policy analysis please stand up?," Journal of Policy Modeling, Elsevier, vol. 23(6), pages 621-635, August.
  20. Ramos, Maria Priscila & Bureau, Jean-Christophe & Salvatici, Luca, 2007. "Shipping the good beef out: EU trade liberalization to Mercosur exports," Working Papers 7215, TRADEAG - Agricultural Trade Agreements.
  21. Pomfret, Richard, 1985. "Categorical Aggregation and International Trade: A Comment," Economic Journal, Royal Economic Society, vol. 95(378), pages 483-85, June.
  22. McDougall, Robert, 2002. "A New Regional Household Demand System for GTAP," GTAP Technical Papers 942, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  23. Bouet, Antoine & Decreux, Yvan & Fontagne, Lionel & Jean, Sebastien & Laborde, David, 2005. "A Consistent Picture of Applied Protection Across the World," Working Papers 18859, TRADEAG - Agricultural Trade Agreements.
  24. Beghin, John C & Kherallah, Mylene, 1994. "Political Institutions and International Patterns of Agricultural Protection," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 482-89, August.
  25. Peter B. Dixon & Maureen T. Rimmer, 2004. "The US Economy from 1992 to 1998: Results from a Detailed CGE Model," The Economic Record, The Economic Society of Australia, vol. 80(s1), pages S13-S23, 09.
  26. Malakellis, Michael, 1998. "Should Tariff Reductions Be Announced? An Intertemporal Computable General Equilibrium Analysis," The Economic Record, The Economic Society of Australia, vol. 74(225), pages 121-38, June.
  27. Russell H. Hillberry, 2002. "Aggregation bias, compositional change, and the border effect," Canadian Journal of Economics, Canadian Economics Association, vol. 35(3), pages 517-530, August.
  28. A. Ganesh Kumar & Gordhan Kumar Saini, 2007. "Economic co-operation in South Asia: The Dilemma of SAFTA and beyond," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2007-017, Indira Gandhi Institute of Development Research, Mumbai, India.
  29. Willenbockel, Dirk, 2004. "Specification choice and robustness in CGE trade policy analysis with imperfect competition," Economic Modelling, Elsevier, vol. 21(6), pages 1065-1099, December.
  30. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  31. 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.
  32. Joseph Francois & Hans van Meijl & Frank van Tongeren, 2005. "Trade liberalization in the Doha Development Round," Economic Policy, CEPR;CES;MSH, vol. 20(42), pages 349-391, 04.
  33. Amita Batra, 2006. "Asian Economic Integration ASEAN+3+1 or ASEAN+1s?," Trade Working Papers 22143, East Asian Bureau of Economic Research.
  34. Huiwen Lai & Susan Chun Zhu, 2004. "The determinants of bilateral trade," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 459-483, May.
  35. Gohin, Alexandre, 2005. "The specification of price and income elasticities in computable general equilibrium models: An application of latent separability," Economic Modelling, Elsevier, vol. 22(5), pages 905-925, September.
  36. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
  37. Sang-Hee Han & Alan D. Woodland, 2003. "An Inter-temporal General Equilibrium Econometric Model for a Small Open Economy with Application to Australia," The Economic Record, The Economic Society of Australia, vol. 79(244), pages 1-19, 03.
  38. John Beghin & Cheng Fang, 2002. "Protection and Trade Liberalization under Incomplete Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 768-773.
  39. Malcolm, Gerard, 1998. "Adjusting Tax Rates in the GTAP Data Base," GTAP Technical Papers 315, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Joseph Francois & Miriam Manchin & Hanna Norberg & Olga Pindyuk & Patrick Tomberger, 2013. "Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment," IIDE Discussion Papers 20130401, Institue for International and Development Economics.
  2. Brockmeier, Martina & Bektasoglu, Beyhan, 2014. "Model structure or data aggregation level: Which leads to greater bias of results?," Economic Modelling, Elsevier, vol. 38(C), pages 238-245.
  3. Bektasoglu, Beyhan & Urban, Kirsten & Brockmeier, Martina, 2011. "Effects of Aggregation and Model Structure on Model Linkages," 51st Annual Conference, Halle, Germany, September 28-30, 2011 114721, German Association of Agricultural Economists (GEWISOLA).
  4. Acharya, Sanjaya & Hölscher, Jens & Perugini, Cristiano, 2012. "Trade liberalisation and inequalities in Nepal: A CGE analysis," Economic Modelling, Elsevier, vol. 29(6), pages 2543-2557.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:27:y:2010:i:3:p:755-766. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.