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Key Assumptions in AGE Trade Models: An Assessment using the Mirage Model

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  • Bchir, Mohamed Hedi
  • Decreux, Yvan
  • Guérin, Jean-Louis
  • Jean, Sébastien

Abstract

AGE models are among the main tools for assessing trade policies, but the adequacy of a model and the relevance of the results it delivers are wholly dependant on the analytical framework and on the parameters chosen. Based on the newly-built model Mirage (Modeling International Relationships in Applied General Equilibrium, a model built by the Cepii, with the collaboration of the ITC, Geneva), this paper discusses the main aspects of these choices, and illustrates their consequences for trade policy assessment through various sensitivity analysis exercises, for scenarios designed on purpose. The aim is both to reach a better understanding of underlying mechanisms, and to provide a greater transparency to the analysis of trade policies through AGE models. The topics discussed include: - Imperfect competition and product differentiation, for which a new calibration procedure is proposed, in order to take more consistently advantage of the results of econometric studies, for a rather standard model of horizontal product differentiation under oligopolistic competition ?la Cournot. - Dynamic setting, with special attention devoted to the questions of production factors mobility and of market structure's adjustment, and of their interaction with trade evolutions. - Foreign direct investments, in the light of the recent empirical results. - Product demand, including the question of products quality. - Externalities of trade and investment flows on productivity. For each of these aspects, a specific context (aggregation and scenario) is first chosen, so as to enlighten the corresponding stakes. Various hypothesis and parametrizations are then studied alternatively. The aim is to assess how relevant each aspect is for trade policy analysis, and how robust its modelling is. The simulations are carried out using the multinational model Mirage, calibrated with the GTAP5 database, except for protection, where the MAcMaps database (Market Access Maps developed by ITC and CEPII on the basis of UNCTAD-TRAINS, AMAD, UNSD-COMTRADE and WTO notifications) is used.

Suggested Citation

  • Bchir, Mohamed Hedi & Decreux, Yvan & Guérin, Jean-Louis & Jean, Sébastien, 2002. "Key Assumptions in AGE Trade Models: An Assessment using the Mirage Model," Conference papers 331050, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331050
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    References listed on IDEAS

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