CGE models for the analysis of trade policy in developing countries

The use of computable general equilibrium (CGE) simulation models for policy analysis has become widespread. However, such techniques are not well suited to economywide analysis in developing countries. Instead, simulation models relying on"borrowed"parameter estimates have been used for a wider range of applications in developing countries. This survey begins with a presentation of the core structure of simulation models for trade policy analysis. It shows that a few share parameters and elasticities, leading to a fourway sectoral classification: exportables, importables, nontradables, and import-dependent sectors. The rest of the survey deals with a range of applications relating to trade policy, internal and external balances, and intertemporal issues. These economywide simulation models are good tools for quantifying the tradeoffs in policy packages that the Bank discusses with its clients. Future modeling exercises would nevertheless benefit from direct econometric estimates rather than"borrowed"parameter estimates.