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Quantitative Trade Models: Developments and Challenges

Author

Listed:
  • Timothy J. Kehoe
  • Pau S. Pujolas
  • Jack Rossbach

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. Pujolas & Jack Rossbach, 2016. "Quantitative Trade Models: Developments and Challenges," NBER Working Papers 22706, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22706
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    Cited by:

    1. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    2. Scott French, 2017. "Comparative Advantage and Biased Gravity," Discussion Papers 2017-03, School of Economics, The University of New South Wales.
    3. repec:aea:jecper:v:31:y:2017:i:4:p:163-84 is not listed on IDEAS
    4. repec:oup:erevae:v:44:y:2017:i:4:p:592-633. is not listed on IDEAS
    5. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CESifo Working Paper Series 6668, CESifo Group Munich.
    6. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CEP Discussion Papers dp1499, Centre for Economic Performance, LSE.
    7. Sampson, Thomas, 2017. "Brexit: the economics of international disintegration," LSE Research Online Documents on Economics 86591, London School of Economics and Political Science, LSE Library.
    8. Kehoe, Timothy J. & Pujolas, Pau S. & Rossbach, Jack, 2018. "Improving the Analysis of Trade Policy," Economic Policy Paper 18-1, Federal Reserve Bank of Minneapolis.
    9. repec:bpj:pewipo:v:18:y:2017:i:1:p:32-55:n:2 is not listed on IDEAS

    More about this item

    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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