Computable General Equilibrium models, widely used for the analysis of Free Trade Agreements (FTAs) are often criticized for having poor econometric foundations. This paper improves the linkage between econometric estimates of key parameters and their usage in CGE analysis in order to better evaluate the likely outcome of a Free Trade Area of the Americas. Our econometric work focuses on estimation of a particular parameter, the elasticity of substitution among imports from different countries, which is especially critical for evaluating the positive and normative outcomes of FTAs. We match the data in the econometric exercise to the policy experiment at hand, and employ both point estimates and standard errors from the estimates.The FTAA analysis then takes explicit account of the degree of uncertainty in the underlying parameters. We sample from a distribution of parameter values given by our econometric estimates in order to generate a distribution of model results, from which we can construct confidence intervals. We find that imports increase in all regions of the world as a result of the FTAA, and this outcome is robust to variation in the trade elasticities. Ten of the thirteen FTAA regions experience a welfare gain in which we are more than 95% confident. We conclude that there is great potential for combining econometric work with CGE-based policy analysis in order to produce a richer set of results that are likely to prove more satisfying to the sophisticated policy maker. (Financial Times, 2003)
Recent analysis has highlighted agricultural land conversion as a significant debit in the greenhouse gas accounting of ethanol as an alternative fuel. A controversial element of this debate is the role of crop yield growth as a means of avoiding cropland conversion in the face of biofuels growth. We find that standard assumptions of yield response are unduly restrictive. Furthermore, we identify both the acreage response and bilateral trade specifications as critical considerations for predicting global land use change. Sensitivity analysis reveals that each of these contributes importantly to parametric uncertainty. Copyright 2009, Oxford University Press.
Computable General Equilibrium models, widely used for the analysis of Free Trade Agreements (FTAs) are often criticized for having poor econometric foundations. This paper improves the linkage between econometric estimates of key parameters and their usage in CGE analysis in order to better evaluate the likely outcome of a Free Trade Area of the Americas. Our econometric work focuses on estimation of a particular parameter, the elasticity of substitution among imports from different countries, which is especially critical for evaluating the positive and normative outcomes of FTAs. We match the data in the econometric exercise to the policy experiment at hand, and employ both point estimates and standard errors from the estimates.The FTAA analysis then takes explicit account of the degree of uncertainty in the underlying parameters. We sample from a distribution of parameter values given by our econometric estimates in order to generate a distribution of model results, from which we can construct confidence intervals. We find that imports increase in all regions of the world as a result of the FTAA, and this outcome is robust to variation in the trade elasticities. Ten of the thirteen FTAA regions experience a welfare gain in which we are more than 95% confident. We conclude that there is great potential for combining econometric work with CGE-based policy analysis in order to produce a richer set of results that are likely to prove more satisfying to the sophisticated policy maker. (Financial Times, 2003)
Computable General Equilibrium (CGE) models are commonly used for global agricultural market analysis. Concerns are sometimes raised, however, about the quality of their output since key parameters may not be econometrically estimated and little emphasis is generally given to model assessment. This article addresses the latter issue by developing an approach to validating CGE models based on the ability to reproduce observed price volatility in agricultural markets. We show how patterns in the deviations between model predictions and validation criteria can be used to identify the weak points of a model and guide development of improved specifications with firmer empirical foundations. Copyright 2007, Oxford University Press.
"Rich countries' agricultural trade policies are the battleground on which the future of the WTO's troubled Doha Round will be determined. Subject to widespread criticism, they nonetheless appear to be almost immune to serious reform, and one of their most common defences is that they protect poor farmers. Our findings reject this claim. The analysis conducted here uses detailed data on farm incomes to show that major commodity programmes are highly regressive in the US, and that the only serious losses under trade reform are among large, wealthy farmers in a few heavily protected sub-sectors. In contrast, analysis using household data from 15 developing countries indicates that reforming rich countries' agricultural trade policies would lift large numbers of developing country farm households out of poverty. In the majority of cases these gains are not outweighed by the poverty-increasing effects of higher food prices among other households. Agricultural reforms that appear feasible, even under an ambitious Doha Round, achieve only a fraction of the benefits for developing countries that full liberalization promises, but protect the wealthiest US farms from most of the rigors of adjustment. Finally, the analysis conducted here indicates that maximal trade-led poverty reductions occur when developing countries participate more fully in agricultural trade liberalization." Copyright (c) CEPR, CES, MSH, 2007.
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