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Quantitative Trade Models: Developments and Challenges

Author

Listed:
  • Timothy J. Kehoe

    (Department of Economics, University of Minnesota, Minneapolis, Minnesota 55455)

  • Pau S. Pujolàs

    (Department of Economics, McMaster University, Hamilton, Ontario L8S 4L8, Canada)

  • Jack Rossbach

    (Department of Economics, Georgetown University Qatar, Doha, Qatar)

Abstract

Applied general equilibrium (AGE) models, which feature multiple countries, multiple industries, and input–output linkages across industries, have been the dominant tool for evaluating the impact of trade reforms since the 1980s. We review how these models are used to perform policy analysis and document their shortcomings in predicting the industry-level effects of past trade reforms. We argue that, to improve their performance, AGE models need to incorporate product-level data on bilateral trade relations by industry and better model how trade reforms lower bilateral trade costs. We use the least-traded-products methodology of Kehoe et al. (2015) to provide guidance on how improvements can be made. We provide further suggestions on how AGE models can incorporate recent advances in quantitative trade theory to improve their predictive ability and better quantify the gains from trade liberalization.

Suggested Citation

  • Timothy J. Kehoe & Pau S. Pujolàs & Jack Rossbach, 2017. "Quantitative Trade Models: Developments and Challenges," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 295-325, September.
  • Handle: RePEc:anr:reveco:v:9:y:2017:p:295-325
    DOI: 10.1146/annurev-economics-080614-115502
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    Keywords

    applied general equilibrium; trade liberalization; input–output linkages; Armington elasticities; trade costs;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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