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

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  • 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
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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 Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. 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, pages 229-250.
    4. 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.
    5. Eduardo Haddad & Geoffrey Hewings, 2004. "Transportation Costs, Increasing Returns and Regional Growth: An Interregional CGE Analysis," ERSA conference papers ersa04p461, European Regional Science Association.
    6. 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, pages 476-496.
    7. Eduardo Haddad & Fernando Perobelli, 2005. "Trade Liberalization and Regional Inequality - Do Transportation Costs Impose a Spatial Poverty Trap?," ERSA conference papers ersa05p700, European Regional Science Association.
    8. Eduardo Haddad & Geoffrey Hewings, 2004. "Transportation Costs, Increasing Returns and Regional Growth: An Interregional CGE Analysis," ERSA conference papers ersa04p461, European Regional Science Association.
    9. 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.
    10. 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 32th Brazilian Economics Meeting] 131, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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