Transcript Future Directions for GTAP

Global Economic Modeling using GTAP
Future Directions
presented to the
Third Annual Conference in Global
Economic Analysis, Melbourne
by
Thomas W. Hertel
Center for Global Trade Analysis
Outline
• Demand parameter estimation:
– import demand elasticities: maximum entropy
– consumer demand: AIADS
• Supply-side innovations:
– industrial structure
– productivity convergence
• Policy modeling: TRQs
• Dynamics
2
Demand #1
Estimating Armington Parameters
• Most controversial parameters in GTAP:
– “Structuralist” economists favor smaller values -gives strong TOT effects, lower welfare gains
– “Market oriented” economists favor larger ones -gives larger gains from liberalization
– Basically an empirical question
• This study (led by Arndt and Liu) estimates
trade parameters most consistent with
historical experience.
3
Methodology
• Follows Arndt and Robinson work on Mozambique
• Vary parameters and re-solve model to obtain best
fit to historical data
• Maximum Entropy criterion for evaluating how well
the model tracks historical experience
• Implemented using modified version of Rutherford’s
GTAPinGAMS model
• GTAP v4 database is starting point - shocks to factor
endowments, govt cons, investment, and protection
levels from 1995 to 1992, 1989, and 1986
4
ME Estimates of D
7
6
5
1992
1989
1986
4
3
2
1
0
Primary Agric.
Motor Vehicles
5
Future Directions
• Provides ideal laboratory for testing
alternative model specifications:
– 2x rule relating D and M
– CET between domestics and exports
• In long run offers approach to model
validation
• Need for common historical data
series
6
Demand #2
Modeling Consumer Behavior
• Longer run projections hinge on demand specification
• Income elasticities of demand change as individuals
become wealthier
• Econometric work always outdated – GTAP uses
estimates from from 1980’s
• Use Powell and Rimmer’s AIDADS demand system to
track behavior over wide range and update elasticitiess
7
Estimating AIDADS
• Research with Cranfield, Eales and Preckel
• 1985 International Comparisons Project
• 64 countries ranging from Ethiopia to USA
• 113 goods
• MLE estimation
8
Consumer budget shares vs. income
Budget share
0.5
0.4
0.3
0.2
0.1
0
4
5
6
7
8
9
10
Natural log of per capita expenditure
Food
Other non-durables
Services
Durables
9
AIDADS in GTAP
• 9 good version incorporated AIDADS
into GTAP (Wusheng Yu’s paper)
• Introduce margins sectors to bridge
difference: producer – consumer prices
• Project to 2020:
– demand at consumer prices
– demand at producer prices
– output requirements
10
Estimated vs. Calibrated Elasticities
1.6
The Case for Newly Industrialized Economies
85Calibrated
85 Estimated
1.4
1.2
0.35
1
0.3
0.8
0.6
0.25
GR
0.4
0.2
0.2
0
GR
1.4
LI
HO
FI
OF
TE
RE MN
SE
95Calibrated
95 Estimated
1.2
1
0.15
0.1
0.05
0.8
0
0.6
85Calibrated
0.4
95Calibrated
2020
0.2
0
GR
LI
HO
FI
OF
TE
RE MN
SE
11
Demand Side Experiment
qgdp
pop
400
300
200
100
– GTAP Baseline
12
JP
N
EI
T
M
AN
AU
S
US
A
CA
N
W
EU
M
ER
M
EX
RO
W
AS
6
0
IC
• Data
500
N
– no resource
constraints
– therefore pr. factor
costs and prices fixed
600
CH
N
• Population and
income growth
• PE closure
A focus on food: meat demand increases
fastest for consumers
300
250
200
150
100
50
0
CHN
AS6
pop
ROW
gra
EIT
liv
AUS
hor
CAN
fis
JPN
ofd
13
Supply #1
The Role of Industrial Structure
in Morocco-EU FTA
• Based on research conducted by Aziz Elbehri
• Relationship with EU shapes Moroccan economy
– access in agriculture restricted
– privileged access in manufactures
• FTA = free trade in industrial products by 2008
– primary impact on Moroccan manufactures
– manufactures production highly concentrated
– potential for rationalization – or wholesale collapse of
manufactures
14
Model Structure
• Application of GTAP tech paper by Francois
• Key assumptions:
– Cournot competition among domestic producers
who produce homogenous good
– Domestic and foreign markets integrated
– Foreign products differentiated
– Domestic producers assume import prices fixed in
calculating perceived demand elasticity
• Data from industrial census
15
Market structure and Model Calibration (Morocco; 1995)
4-plant
Concentration Herfindhal
Ratio
Index
Meat products
Vegetable oils & fat
Dairy products
Sugar
Other food products
Beverages & Tobacco
Textiles
Wearing apparel
Wood products
Paper & Publishing
Chemical products
Metal products
Motor vehicles
Light manufacturing
Other manufacturing
66.43
87.27
87.65
90.27
32.52
95.84
36.91
25.67
81.48
51.72
68.39
56.55
86.56
88.52
93.25
0.2173
0.4250
0.4254
0.4893
0.0790
0.7907
0.1214
0.0434
0.3236
0.2218
0.3892
0.2315
0.2867
0.4138
0.5141
Price-cost
Markup
Economies
of scale
(CDR)
1.11
1.33
1.49
2.39
1.06
2.45
1.07
1.02
1.26
1.21
1.35
1.19
1.10
1.21
1.49
0.24
0.16
0.13
0.11
0.10
0.10
0.19
0.19
0.11
0.20
0.16
0.09
0.25
0.15
0.14
Source: Authors' calculations from annual manufacturing survey (Ministry of Commerce and Industry).
Market Structure makes a difference
EU-Morocco FTA: IC/IRTS vs. PC/CRTS
30
% change in output
20
10
0
-10
-20
-30
Meats
Bev/Tob
Apparel
Paper
PC/CRTS
IC/IRTS
Chem
MV
OthM
17
Supply #2
Technology Convergence
• Controversy over China’s future trade
position for meat products
– everyone predicts rapid growth in demand
– but less work on the supply-side
• China’s livestock productivity still far below
intn’l frontier – but catching up is occurring
• What are implications for trade?
• Based on research led by Alejandro Nin 18
Cumulative Productivity Growth Rates
for China (PFP)
Pigs
Poultry
6
3
5
2.5
4
2
3
1.5
2
1
1
0.5
0
0
Frontier
China
Catching-up
Frontier
China
Catching-up
19
Productivity Forecasts for China
Using the Logistic Functional Form
Pigs
Poultry
6
100
5
Kgs./stock*1000)
120
Kgs./head
80
60
40
4
3
2
20
1
0
0
Data
Forecast
Data
Forecast
20
Bootstrapped Distribution of
Productivity Forecasts
250
250
200
200
150
150
100
100
50
50
0
0
116 120 124 128 132
Mean
124
S.D.
3.62
Max
135
Min
109
5.2
Mean
5.55
5.4
5.6
S.D.
0.19
5.8
6
Max
6.29
Min
4.94
21
Uncertainty in Productivity
Impact on Projected Trade Balances
95% confidence intervals
6000
Range of trade balance values
5000
4000
3000
2000
1000
0
-1000
-2000
-3000
-4000
Uncertainty in non-ruminants
productivity
Uncertainty in non-livestock
productivity
22
Recent Developments in Policy
Modeling TRQs
• Introduced in UR as way of ensuring minimum
access in presence of very high tariffs
• Makes analysis of partial liberalization vastly
more complex
• Who gets rents initially? What happens to these
rents when enlarge quota or cut tariffs?
• Based on:
– GTAP technical paper by Elbehri and Pearson
– sugar application led by Aziz Elbehri
23
TRQ generates economic rents
Price
Pw(1 + T2)
Rents
Pw(1 + T1)
Net Import
Demand
Tariff Revenues
Pw
Q*
Q
Imports
24
EU TARIFF CUT
Lost Quota Rents Drive Exporters’ Welfare
a
Afric
f
o
.
R
ibean
r
r
a
C
R
m.
A
n
i
t
a
. of L
frica
A
h
t
Sou
E.U.
-200
0
200
400
Quota & EU Tariffs
600
800
1000
Welfare
25
EU EU Quota Expansion
Higher Rents Raise Exporters’ Welfare
E.U.
ica
r
f
A
h
Sout
R. o
m.
A
n
i
t
f La
ibean
r
r
a
C
rica
f
A
f
R. o
-250
-200
-150
-100
-50
0
50
Quota & EU Tariffs
Welfare
100
150
200
26
EU Tariff Cut & Quota Expansion
Welfare Gains for BOTH EU and Exporters
frica
A
f
o
R.
R
m.
A
n
i
t
a
. of L
rica
f
A
h
Sout
ean
b
i
r
r
Ca
E.U.
-100
0
100
200
Quota & EU Tariffs
300
400
500
Welfare
27
Recent Developments
Modeling Dynamics
– Dynamic GTAP model developed by
Ianchovichina and McDougall
– Builds on standard GTAP Model
– Recursive Dynamic with accumulation of
Capital stocks and wealth
– Foreign Capital ownership.
– Disequilibrium theory of Investment.
28
Foreign Capital Ownership
• Households invest either domestically
or overseas via a global trust (no
bilateral detail on ownership)
• Shares of savings held in foreign and
domestic assets are held constant,
subject to adding-up constraints
29
Disequilibrium Approach
• Problem #1: Equalization of rates of return
poses a problem implies perfect capital
mobility. This is clearly not the case.
• Problem #2: Theory and data are inconsistent:
high investment in some regions with low ROR
• Solution #1: Gradual equalization of rates of
return with perfect capital mobility in long-run
only
• Solution #2: Introduce errors in expectations
30
Analysis of China’s WTO Accession
•
•
•
•
•
•
•
Research by Terrie Walmsley
Baseline from1995 to 2020 (13 periods)
Shocks to labor force and population
Endogenous capital accumulation
TFP calibrated to hit GDP targets
UR agreement 1995-2005
China’s pre-WTO accession tariff cuts
1995 to 2000
31
cumulative % difference from base
China’s Real GDP and Utility
10
9
8
7
6
5
4
3
2
1
0
1
5
99
-
9
19
9
0
20
0
0
20
1
0
20
2
0
20
3
0
20
4
0
20
qgdp
5
0
20
6
0
20
7
0
20
8
09 014 019
0
2
-2 5 -2
0
1
1
20
20
utility
32
Impact of China’s accession on
employment NAM Apparel
Index: 1995 = 100
120
100
80
60
40
20
0
2015-2020
2010-2014
CHN2005
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1995-1999
1994
Base Case
33
Alternative path for China’s quota abolition
% subject to free trade
120
100
80
60
40
20
0
2011
2009
CHN2005
2007
2005
2003
2001
1999
1997
1995
Base Case
ATC2010
34
Impact of 10 year phase-out on
Employment in NAM Apparel
Index: 1995 = 100
120
100
80
60
40
20
0
2015-2020
AT C2010
2010-2014
2009
2008
CHN2005
2007
2006
2005
2004
2003
2002
2001
2000
1995-1999
1994
Base Case
35
Summary
Forecast Demise of the Generic GTAP
Application
• In future, applications will be tailored much
more closely to the economy/policy at hand
• GTAP data base, technical papers and
software provide starting point
• Researchers must supplement this with:
– econometric work on parameters or shocks
– additional detail on structure of the economy
– careful analysis and modeling of policies
36