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GTAP Resource #1561

"Evaluating the Success of a CGE Model of the U.S.-Canada and North American Free Trade Agreement"
by Fox, Alan

In this paper I analyze the performance of the Michigan Model of World Production and Trade in simulating the impact of trade liberalization under the North American Free Trade Agreement, reviewing the results reported in Brown, Deardorff, and Stern (World Economy, v. 15, pp. 11-29, 1992). Because the NAFTA entered into force only part way through the phase-in of the U.S.-Canada FTA accord, I consider their joint impact on the pattern of relative trade flows, production, and employment. The methodology draws on the Fox (U. Michigan Dissertation, 2000) analysis of the U.S.-Canada FTA. A substantial innovation in this paper is the reimplementation of the model using MPSGE/GAMS.

The model borrows from Markusen’s MPSGE implementation of increasing returns to scale models and adapts them to reflect the structure of the Michigan Model. The result is a relatively clear to understand implementation of Brown, Deardorff and Stern’s work, permitting more-direct comparison of different modeling frameworks using the same base data set. This opens up a number of possibilities for specification testing.

Data for the model are drawn from a number of sources to establish the 1988 benchmark, and the state of the economy in the comparison period of 2000. The 1988 benchmark closely follows Fox (2000). The IO tables are rebalanced to reflect sectoral gross output, exports, and imports in 1988. Trade flows are drawn from Feenstra et al. (1997) as well the UN Comtrade database. Output and employment are drawn from the OECD.

Preliminary results suggest that the model performs best when simulating the impact on the already-substantial trade flows between U.S.-Canada and U.S.-Mexico. The dramatic expansion of certain sectors that had little pre-NAFTA trade highlights the difficulty of using a CES specification.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Version: 1
Created: Fox, A. (5/7/2004)
Updated: Fox, A. (5/8/2012)
Visits: 2,472
- Calibration and parameter estimation
- North America

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