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

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

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.

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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 48 (2008)
Issue (Month): 2 (May)
Pages: 287-306

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Handle: RePEc:eee:quaeco:v:48:y:2008:i:2:p:287-306
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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