Computational General Equilibrium Modelling of International Trade

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.