Creating a Disaggregated CGE Model for Trade Policy Analysis: GTAP-MVH

Abstract

Thousands of economists spread across almost every country use the GTAP model to analyse trade policies including trade wars and trade agreements. GTAP has an impressive regional coverage (140 countries), but the standard commodity coverage (57 commodities/industries) can cause frustration when tariffs on narrowly defined products are being negotiated. This article sets out a method for disaggregating commodities/industries in computable general equilibrium models such as GTAP and applies it to GTAP’s motor vehicle sector. The method makes use of readily available highly disaggregated trade data supplemented by detailed input–output data where available and data from a variety of other sources such as commercial market reports. JEL Codes: C68, F13, F14, F17

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“…We use the GTAP‐MVH model documented in Dixon et al . (2020). GTAP‐MVH is a dynamic implementation of the GTAP (Global Trade Analysis Project) model documented in Hertel (1997) and Corong et al .…”

“…As discussed in Dixon et al . (2020), standard GTAP has a number of attributes that limit its usefulness for investigation of the policy issues examined in this paper. In particular, standard GTAP assumes that capital is fully mobile between sectors in each region in both the short‐run and long‐run, and real wages are either inflexible within each region (in the short‐run) or fully flexible within each region to maintain full employment (in the long‐run).…”

“…We summarise these below and refer the reader to Dixon et al . (2020) or the Appendix at the end of this paper for further details.…”

“…As described in Dixon et al . (2020), GTAP‐MVH models regional capital stocks as specific to each industry. Units of new industry‐specific capital are assumed to be constructed with a technology that is common to all industries (consistent with the single capital‐creator assumption of standard GTAP), but are allocated to specific industries on the basis of movements in relative rates of return across industries.…”

“…As described in Dixon et al . (2020), standard GTAP handles the accounting for country‐specific savings/investment imbalances via a device called the Global Bank. Countries with a surplus of savings over investment are modelled as contributing funds to the Global Bank, while countries with a deficit of savings over investment are modelled as borrowing funds from the Global Bank.…”