1 / 34

EC 936 ECONOMIC POLICY MODELLING

EC 936 ECONOMIC POLICY MODELLING. LECTURE 5: MODELS OF TRADE AND TRADE POLICY: CGE PERSPECTIVES ON TRADE LIBERALIZATION. TRADE ISSUES. Exogenous shocks Terms of trade Changes in international capital flows Policy shocks Tariffs and export subsidies Non-tariff barriers (quotas, etc.)

ayasha
Download Presentation

EC 936 ECONOMIC POLICY MODELLING

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. EC 936 ECONOMIC POLICY MODELLING LECTURE 5: MODELS OF TRADE AND TRADE POLICY: CGE PERSPECTIVES ON TRADE LIBERALIZATION

  2. TRADE ISSUES • Exogenous shocks • Terms of trade • Changes in international capital flows • Policy shocks • Tariffs and export subsidies • Non-tariff barriers (quotas, etc.) • Domestic taxes and subsidies

  3. WHY CGE MODELS? • Compensating equivalence strategy (partial equilibrium measures) • Trade liberalization influences product prices, factor prices, tax rates, thus requiring general equilibrium analysis • Counterfactual possibilities of CGE modelling

  4. HOW TO MODEL TRADE • SINGLE COUNTRY MODELS VS. • WORLD TRADE MODELS

  5. SINGLE COUNTRY MODELS • Some lessons from Asia and Africa using micro-macro simulation approaches • Bangladesh • India • Nepal • Pakistan • Philippines • Benin • Senegal Source: Cockburn, Decaluwe and Robichaud, 2007

  6. TRADE AND OUTPUT EFFECTS • Industrial production increases relative to agricultural output because: (i) import price reductions have a relatively small effect on domestic demand for local products, given imperfect substitutability and low initial levels of import penetration; (ii) industrial exports respond positively to tariff cuts; (iii) input costs fall faster in industry than in agriculture.

  7. FACTOR PRICE EFFECTS • Relative wages increase while returns to capital fall Assumes factor mobility elasticity as follows: Capital: σf = 0 Labour: σf = -1

  8. HOUSEHOLD INCOME EFFECTS • Nominal income tends to fall in rural areas • Nominal income tends to fall in urban areas, but by less than rural income

  9. CONSUMER PRICE EFFECTS • Nominal consumer prices fall more in industry than in agriculture or services • Cost of living effects vary across regions and countries

  10. WELFARE AND POVERTY IMPACTS • Trade liberalization increases total welfare • Trade liberalization reduces overall poverty but with different sectoral effects • Trade liberalization tends to lower urban poverty • Trade liberalization may increase rural poverty

  11. CLOSURE MATTERS • Modelling domestic savings: Senegal vs. Benin • Factor mobility assumption: short-run vs. long-run (i.e. change σf for capital from 0 to -1) • Government closure assumptions: revenue effects (sales tax vs. production/income tax)

  12. MULTI-COUNTRY MODELS • GTAP (GLOBAL TRADE ANALYSIS PROJECT) • Local closure vs. global closure rules • Product differentiation by country • International factor mobility • Political reaction functions

More Related