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CGE models for the analysis of trade policy in developing countries

  • De Melo, Jaime

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3.

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Date of creation: 01 Jul 1988
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Handle: RePEc:wbk:wbrwps:3
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  1. Dewatripont, Mathias & Michel, Gilles, 1987. "On closure rules, homogeneity and dynamics in applied general equilibrium models," Journal of Development Economics, Elsevier, vol. 26(1), pages 65-76, June.
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  14. Chenery, Hollis B, 1975. "The Structuralist Approach to Development Policy," American Economic Review, American Economic Association, vol. 65(2), pages 310-16, May.
  15. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  16. Decaluwe, B. & Martens, A., 1986. "Cge Modeling and Developing Economies: a Concise Empirical Survey of 56 Applications to 24 Countries," Cahiers de recherche 8626, Universite de Montreal, Departement de sciences economiques.
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