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A New Regional Household Demand System For Gtap

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  • McDougall, Robert

Abstract

The GTAP model, versions 4.1 and lower, suffers from some defects in the implementation of the regional household demand system. Most seriously, the upper level of the demand system assumes that each regional household faces a fixed price for utility from private consumption. But with a private consumption demand system of the CDE form, the price of utility from private consumption depends on the level of private consumption expenditure. With no fixed price for utility from private consumption, the familiar Cobb-Douglas demand system does not apply. Accordingly, the upper-level demand equations are in error. Furthermore, utility and equivalent variation are wrongly computed in simulations with non-standard settings for the CDE expansion parameters. Even with the standard settings, in multi-step simulations the utility and equivalent variation computations are exact. The welfare decomposition inherits the defects of the equivalent variation computation. In removing these defects we revise in passing some minor misfeatures of the old treatment: Firstly, we treat the entire final demand system as the demand system of a representation household, rather than a conglomeration of representative and region-wide demand systems (subsection 2.6). Secondly, we provide a new facility for shifting the allocation of regional income exogenously by modifying rather than overriding the final demand system (subsection 2.14). Finally, we eliminate an uninterpretable "nuisance term" from the decomposition of equivalent variation(subsection 4.3).

Suggested Citation

  • McDougall, Robert, 2002. "A New Regional Household Demand System For Gtap," Technical Papers 28713, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
  • Handle: RePEc:ags:pugttp:28713
    DOI: 10.22004/ag.econ.28713
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    File URL: http://ageconsearch.umn.edu/record/28713/files/tp20.pdf
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    References listed on IDEAS

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    1. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
    2. Hanslow, Kevin, 2000. "A General Welfare Decomposition for CGE Models," GTAP Technical Papers 498, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    3. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, December.
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    Cited by:

    1. Narayanan, Badri G. & Hertel, Thomas W. & Horridge, J. Mark, 2010. "Disaggregated data and trade policy analysis: The value of linking partial and general equilibrium models," Economic Modelling, Elsevier, vol. 27(3), pages 755-766, May.
    2. Oyewumi, Olubukola Ayodeju & Jooste, Andre & Britz, Wolfgang & van Schalkwyk, Herman D., 2007. "Tariff and Tariff Rate Quota Liberalization in the South African Livestock Industry: Approaches to Welfare Measurement," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(1), pages 1-22, March.
    3. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
    4. Hertel, Thomas, 2013. "Global Applied General Equilibrium Analysis Using the Global Trade Analysis Project Framework," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 815-876, Elsevier.
    5. Narayanan, Badri & Thomas Hertel & Mark Horridge, 2010. "Linking Partial and General Equilibrium Models: A GTAP Application Using TASTE," GTAP Technical Papers 3192, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    6. Wei-Bin Zhang, 2009. "Agglomeration and Returns to Scale with Capital and Public Goods in a Multi-Regional Economy," International Economic Journal, Taylor & Francis Journals, vol. 23(1), pages 81-109.
    7. G Philippidis & L J Hubbard, 2003. "Agenda 2000 Reform of the CAP and its Impacts on Member Member States: A Note," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(3), pages 479-486, November.
    8. Joseph Francois & Miriam Manchin & Hanna Norberg & Olga Pindyuk & Patrick Tomberger, 2013. "Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment," IIDE Discussion Papers 20130401, Institue for International and Development Economics.
    9. Xiao-guang Zhang & George Verikios, 2006. "Providing Duty-Free Access to Australian Markets for Least-Developed COuntries: a General Equilibrium Analysis," Economics Discussion / Working Papers 06-09, The University of Western Australia, Department of Economics.
    10. Jan Hagemejer & Jan Michałek & Tomasz Michałek, 2010. "Implications of the Doha Round negotiations in services for Poland," Bank i Kredyt, Narodowy Bank Polski, vol. 41(1), pages 5-30.
    11. Wei Bin Zhang, 2008. "A multi-region economic growth model with migration, housing and regional amenity," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 55, pages 322-350, November.
    12. G. Philippidis & A. I. Sanjuán, 2007. "An Analysis of Mercosur's Regional Trading Arrangements," The World Economy, Wiley Blackwell, vol. 30(3), pages 504-531, March.
    13. Flavio Tosi Feijó, 2018. "Brazilian Competitiveness Of Energy-Intensive And Trade-Exposed Industrial Sectors Vis-À-Vis The Adoption Of Border Carbon Adjustments By The Eu: An Approach Using The Gtap-Ep Model," Anais do XLIV Encontro Nacional de Economia [Proceedings of the 44th Brazilian Economics Meeting] 100, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    14. Lips, Markus, 2005. "Sufficient nourishment worldwide via transfer payments," Food Policy, Elsevier, vol. 30(1), pages 81-96, February.

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