IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v48y2008i2p287-306.html
   My bibliography  Save this article

Sensitivity analysis in applied general equilibrium models: An empirical assessment for MERCOSUR free trade areas agreements

Author

Listed:
  • Domingues, Edson P.
  • Haddad, Eduardo A.
  • Hewings, Geoffrey

Abstract

In this paper, an applied general equilibrium (AGE) model is used to assess the welfare results of alternative free trade areas (FTA) for three MERCOSUR countries, Brazil, Argentina and Uruguay. The results of the sensitivity to shocks and parameters are evaluated. In such a way, the robustness of the results to different degrees of intra-blocs trade liberalization and trade elasticities will be assessed. It is shown that welfare gains for Brazil are very robust to different degrees of trade liberalization, and allocation effects drive these gains. For Argentina and Uruguay, welfare gains depend heavily on a higher degree of liberalization, as they are connected to terms of trade effects. This paper shows that trade elasticities are important parameters driving the model's results, as welfare gains for Argentina and Uruguay in both scenarios are very sensitive to these parameters. Therefore, AGE model's results of alternative FTA for MERCOSUR countries need to consider the uncertainty about parameters and shocks.

Suggested Citation

  • Domingues, Edson P. & Haddad, Eduardo A. & Hewings, Geoffrey, 2008. "Sensitivity analysis in applied general equilibrium models: An empirical assessment for MERCOSUR free trade areas agreements," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(2), pages 287-306, May.
    • Handle: RePEc:eee:quaeco:v:48:y:2008:i:2:p:287-306
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062-9769(07)00040-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. DeVuyst, Eric A. & Preckel, Paul V., 1997. "Sensitivity analysis revisited: A quadrature-based approach," Journal of Policy Modeling, Elsevier, vol. 19(2), pages 175-185, April.
    2. Thomas W. Hertel & Will Martin, 2001. "Second‐Best Linkages and the Gains from Global Reform of Manufactures Trade," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 215-232, May.
    3. Wigle, Randall M, 1991. "The Pagan-Shannon Approximation: Unconditional Systematic Sensitivity in Minutes," Empirical Economics, Springer, vol. 16(1), pages 35-49.
    4. Haddad, Eduardo A. & Domingues, Edson P. & Perobelli, Fernando S., 2002. "Regional effects of economic integration: the case of Brazil," Journal of Policy Modeling, Elsevier, vol. 24(5), pages 453-482, August.
    5. Harrison, Glenn W & Vinod, H D, 1992. "The Sensitivity Analysis of Applied General Equilibrium Models: Completely Randomized Factorial Sampling Designs," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 357-362, May.
    6. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2014. "Economic implications for Turkey of a Customs Union with the European Union," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 16, pages 395-404, World Scientific Publishing Co. Pte. Ltd..
    7. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    8. Edson Domingues & Eduardo Haddad & Fernando Perobelli, 2001. "Short-run Regional Effects of Alternative Strategies for Economic Integration: The Case of Brazil," ERSA conference papers ersa01p210, European Regional Science Association.
    9. Domingues, Edson Paulo & Haddad, Eduardo Amaral, 2005. "Sensitivity Analysis in Computable General Equilibrium Models: An Application for the Regional Effects of the Free Trade Area of the Americas (FTAA)," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 25(1), May.
    10. McKitrick, Ross R., 1998. "The econometric critique of computable general equilibrium modeling: the role of functional forms," Economic Modelling, Elsevier, vol. 15(4), pages 543-573, October.
    11. teixeira, Erly Cardoso & Figueiredo, Adriano Marcos Rodrigues & Ferreira, Adriana da Vieira, 2001. "Impactos da Integração Econômica nas Commodities da Economia Brasileira e da União Européia," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 55(1), January.
    12. Hertel, Thomas W & Martin, Will, 2001. "Second-Best Linkages and the Gains from Global Reform of Manufactures Trade," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 215-232, May.
    13. Hertel, Thomas W. & Will Martin, 1999. "Would Developing Countries Gain from Inclusion of Manufactures in the WTO Negotiations?," GTAP Working Papers 397, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    14. Diao, Xinshen & Somwaru, Agapi, 2000. "An Inquiry on General Equilibrium Effects of MERCOSUR--An Intertemporal World Model," Journal of Policy Modeling, Elsevier, vol. 22(5), pages 557-588, September.
    15. Arndt, Channing, 1996. "An Introduction To Systematic Sensitivity Analysis Via Gaussian Quadrature," Technical Papers 28709, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    16. Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
    17. Hanslow, Kevin, 2000. "A General Welfare Decomposition For Cge Models," Technical Papers 28724, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    18. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, October.
    19. Martin,Will & Winters,L. Alan (ed.), 1996. "The Uruguay Round and the Developing Countries," Cambridge Books, Cambridge University Press, number 9780521586016.
    20. Gurgel, Ângelo Costa & Bitencourt, Mayra Batista & teixeira, Erly Cardoso, 2002. "Impactos dos Acordos de Liberalização Comercial Alca e Mercoeuro sobre os Países Membros," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 56(2), April.
    21. Thomas W. Hertel & Zhi Wang & Wusheng Yu, 1998. "Understanding the Determinants of Structural Change in World Food Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1051-1061.
    22. Thijs ten Raa & Pieter Kop Jansen, 1998. "Bias and Sensitivity of Multipliers," Economic Systems Research, Taylor & Francis Journals, vol. 10(3), pages 275-284.
    23. Thomas W. Hertel & Zhi Wang & Wusheng Yu, 1998. "Understanding the Determinants of Structural Change in World Food Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1051-1061.
    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


    Cited by:

    1. Eduardo Haddad & Geoffrey Hewings, 2007. "Analytically Important Transportation Links: A Field Of Influence Approach To Cge Models," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 085, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Monique Carvalho & André Azevedo & Angélica Massuquetti, 2019. "Emerging Countries and the Effects of the Trade War between US and China," Economies, MDPI, vol. 7(2), pages 1-21, May.
    3. Eduardo A. Haddad & Geoffrey J.D. Hewings, 2004. "Transportation Costs, Increasing Returns and Regional growth: An Interregional CGE Analysis," Working papers - Textos para Discussao do Departamento de Economia da Universidade de Brasilia 315, Departamento de Economia da Universidade de Brasilia.
    4. Eduardo Amaral Haddad & Fernando Salgueiro Perobelli, 2004. "Trade Liberalization And Regional Inequality: Do Transportation Costs Impose A Spatial Poverty Trap?," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting] 131, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Júlio Vicente Cateia & Maurício Vaz Lobo Bittencourt & Terciane Sabadini Carvalho & Luc Savard, 2023. "Funding schemes for infrastructure investment and poverty alleviation in Africa: Evidence from Guinea‐Bissau," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(6), pages 1505-1529, August.
    6. Francois J. Stofberg & Jan H. van Heerden, 2015. "The Short Term Economic Impact of Levying E-Tolls on Industries," Working Papers 201527, University of Pretoria, Department of Economics.
    7. Soo Jung Ha & Geoffrey Hewings & Karen Turner, 2008. "Econometric estimation of Armington import elasticities for regional CGE models of the Chicago and Illinois economies," Working Papers 0810, University of Strathclyde Business School, Department of Economics.
    8. Zachlod-Jelec, Magdalena & Boratynski, Jakub, 2016. "How large and uncertain are costs of 2030 GHG emissions reduction target for the European countries? Sensitivity analysis in a global CGE model," MF Working Papers 26, Ministry of Finance in Poland.
    9. George Verikios & Kevin Hanslow, 2009. "The Long-run Effects of Structural Change and the Treatment of International Capital Accumulation, Mobility and Ownership," Global Economic Review, Taylor & Francis Journals, vol. 38(3), pages 229-250.
    10. Ha, Soo Jung & Hewings, Geoffrey & McGregor, Peter G & Swales, J Kim & Turner, Karen, 2010. "Econometric estimation of Armington import elasticities and their system-wide impact in a regional CGE model of the Illinois economy," Stirling Economics Discussion Papers 2010-19, University of Stirling, Division of Economics.
    11. Haddad, Eduardo A. & Hewings, Geoffrey J.D., 2005. "Market imperfections in a spatial economy: some experimental results," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(2-3), pages 476-496, May.
    12. Ciro Biderman & Bruno Hermann & Fernando Cotelo, 2017. "Economic impacts of São Paulo downtown rehabilitation: a simplified approach with micro-foundations," Regional Studies, Taylor & Francis Journals, vol. 51(9), pages 1362-1373, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
    2. T. Chatzivasileiadis & F. Estrada & M. W. Hofkes & R. S. J. Tol, 2019. "Systematic Sensitivity Analysis of the Full Economic Impacts of Sea Level Rise," Computational Economics, Springer;Society for Computational Economics, vol. 53(3), pages 1183-1217, March.
    3. Eduardo Haddad & Geoffrey Hewings, 2004. "Transportation Costs, Increasing Returns and Regional Growth: An Interregional CGE Analysis," ERSA conference papers ersa04p461, European Regional Science Association.
    4. Cristina Cattaneo, 2008. "The Determinants of Actual Migration and the Role of Wages and Unemployment in Albania: an Empirical Analysis," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 5(1), pages 3-32, June.
    5. Nin, Alejandro & Hertel, Thomas W. & Foster, Kenneth & Rae, Allan, 2004. "Productivity growth, catching-up and uncertainty in China's meat trade," Agricultural Economics, Blackwell, vol. 31(1), pages 1-16, July.
    6. Hertel, Thomas, 2013. "Global Applied General Equilibrium Analysis Using the Global Trade Analysis Project Framework," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 815-876, Elsevier.
    7. Haddad, Eduardo A. & Hewings, Geoffrey J.D., 2005. "Market imperfections in a spatial economy: some experimental results," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(2-3), pages 476-496, May.
    8. Liu, Jing & Arndt, Channing, 2004. "Parameter Estimation and Measures of Fit in A Global, General Equilibrium Model," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 19, pages 626-649.
    9. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
    10. Randhir, Timothy O. & Hertel, Thomas W., 2000. "Trade Liberalization as a Vehicle for Adapting to Global Warming," Agricultural and Resource Economics Review, Cambridge University Press, vol. 29(2), pages 159-172, October.
    11. Joshua Elliott & Meredith Franklin & Ian Foster & Todd Munson & Margaret Loudermilk, 2012. "Propagation of Data Error and Parametric Sensitivity in Computable General Equilibrium Models," Computational Economics, Springer;Society for Computational Economics, vol. 39(3), pages 219-241, March.
    12. Nabil Annabi & John Cockburn & Bernard Decaluwé, 2006. "Functional Forms and Parametrization of CGE Models," Working Papers MPIA 2006-04, PEP-MPIA.
    13. Hertel, Thomas W. & Reimer, Jeffrey J. & Valenzuela, Ernesto, 2005. "Incorporating commodity stockholding into a general equilibrium model of the global economy," Economic Modelling, Elsevier, vol. 22(4), pages 646-664, July.
    14. Yu, Wusheng & Hertel, Thomas W. & Preckel, Paul V. & Eales, James S., 2004. "Projecting world food demand using alternative demand systems," Economic Modelling, Elsevier, vol. 21(1), pages 99-129, January.
    15. Kym Anderson & Ernesto Valenzuela & Lee Ann Jackson, 2008. "Recent and Prospective Adoption of Genetically Modified Cotton: A Global Computable General Equilibrium Analysis of Economic Impacts," Economic Development and Cultural Change, University of Chicago Press, vol. 56(2), pages 265-296, January.
    16. Mark Partridge & Dan Rickman, 2010. "Computable General Equilibrium (CGE) Modelling for Regional Economic Development Analysis," Regional Studies, Taylor & Francis Journals, vol. 44(10), pages 1311-1328.
    17. Nelson B Villoria & Paul V Preckel, 2017. "Gaussian Quadratures vs. Monte Carlo Experiments for Systematic Sensitivity Analysis of Computable General Equilibrium Model Results," Economics Bulletin, AccessEcon, vol. 37(1), pages 480-487.
    18. Randhir, Timothy O. & Hertel, Thomas W., 2000. "Trade Liberalization as a Vehicle for Adapting to Global Warming," Agricultural and Resource Economics Review, Cambridge University Press, vol. 29(2), pages 159-172, October.
    19. Johannes Ziesmer & Ding Jin & Sneha D Thube & Christian Henning, 2023. "A Dynamic Baseline Calibration Procedure for CGE models," Computational Economics, Springer;Society for Computational Economics, vol. 61(4), pages 1331-1368, April.
    20. Nelson Benjamin Villoria & Elliot Wamboka Mghenyi, 2017. "The Impacts of India's Food Security Policies on South Asian Wheat and Rice Markets," The World Bank Economic Review, World Bank, vol. 31(3), pages 730-746.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:48:y:2008:i:2:p:287-306. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.