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LONG-RUN SIMULATIONS WITH GTAP: Illustrative Results from APEC Trade Liberalisation

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  • Terrie Walmsley

Abstract

In static applied general equilibrium models, the exogenous/endogenous split between variables (or closure) is used to infer the time frame over which the effects of a shock are simulated. This paper introduces a long-run closure for the GTAP model (Hertel and Tsigas, 1997) and uses this closure to simulate and compare the short-run and long-run effects of Asia-Pacific trade liberalisation. The approach explored here incorporates some relatively minor changes to existing GTAP theory in order to define a steady state in which growth rates of all real variables are uniform. Such uniformity must apply in the initial database (as well as in the post-shock solution). So to implement the new long run in GTAP a new initial database must first be created. Details concerning the creation of the new database are given, and results under the new approach are compared with those obtained under the old. The emphasis of this paper is on the development of a long-run closure in which the percentage change form equations of the model and the relationships between the levels variables in the GTAP database are consistent. Further research is required into these types of long-run closures to incorporate changes in ownership of capital to ensure that changes in welfare are adequately modelled. In the results reported here, GDP is not a useful guide to national welfare. The long-run closures introduced here are also compared with another comparative static long-run closure developed for GTAP by Francois, MacDonald and Nordstrom (1996).

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Bibliographic Info

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number ip-70.

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Date of creation: Jan 1998
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Handle: RePEc:cop:wpaper:ip-70

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References

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  1. Lawrence H. Goulder & Barry Eichengreen, 1992. "Trade Liberalization in General Equilibrium: Intertemporal and Inter-industry Effects," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 253-80, May.
  2. W. Jill Harrison & K.R. Pearson, 1994. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Centre of Policy Studies/IMPACT Centre Working Papers ip-64, Victoria University, Centre of Policy Studies/IMPACT Centre.
  3. Philip D. Adams & Karen M. Huff & Robert McDougall & K.R. Pearson & Alan A. Powell, 1996. "Medium- and Long-run Consequences for Australia of an APEC Free Trade Area: CGE Analyses using the GTAP and MONASH Models," Centre of Policy Studies/IMPACT Centre Working Papers g-111, Victoria University, Centre of Policy Studies/IMPACT Centre.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  5. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  6. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  7. Francois, Joseph & Bradley McDonald, 1996. "Liberalization and Capital Accumulation in the GTAP Model," GTAP Technical Papers 310, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  8. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
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Cited by:
  1. Terrie L. Walmsley, 1999. "Incorporating International Capital Ownership into the GTAP Model: Results for Asia-Pacific Trade Liberalisation," Centre of Policy Studies/IMPACT Centre Working Papers ip-72, Victoria University, Centre of Policy Studies/IMPACT Centre.
  2. Durán Lima, José Elías & De Miguel, Carlos J. & Schushny, Andrés, 2006. "Los acuerdos comerciales de Colombia, Ecuador y Perú con los Estados Unidos: efectos sobre el comercio, la producción y el bienestar
    [Trade agreements by Colombia, Ecuador and Peru with the Unite
    ," MPRA Paper 10873, University Library of Munich, Germany, revised 25 Apr 2007.
  3. Jong Eun Lee, 2004. "The sequential issue in free trade areas: Policy implication for Korea," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 165-174.
  4. Oktaviani, Rina & Sugema, Iman & Ratnawaty, Anny, 2003. "Bank Restructuring and its Implication on Indonesian Macro Economy and Agricultural Sector," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 58194, Australian Agricultural and Resource Economics Society.

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