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GTAP Resource #4666

"Examining Trade Response of Armington-Krugman-Melitz Encompassing Module in a CGE Model"
by Itakura, Ken and Kazuhiko Oyamada

Computable General Equilibrium (CGE) models have been widely used for quantifying economic impacts of free trade agreements and economic partnership agreements. For the recent examples, it is estimated that Trans-Pacific Partnership (TPP) will increase Japanese real GDP by 0.66%, according to Cabinet Secretariat (2013) in Japan. Pacific Economic Cooperation Council (2012) also estimated that the impact of TPP on Japanese real GDP would be 2.0% higher by 2020. Both of the estimates are based on simulation results obtained from global CGE model; the former uses the GTAP model (Hertel, (1997), and McDougall (2003)), and the latter develops their own global CGE model (Zhai (2008), and Petri et al. (2012)). The difference in the estimated economic effects seems to be large, however, it is not surprising since the components taken into their estimates are different. Petri et al. (2012) considers exhaustive components of liberalization; such as removing tariffs, reducing non-tariff barriers, liberalizing trade in services and foreign direct investment. On the other hand, Cabinet Secretariat (2013) estimates the impact of removing tariffs, thereby resulted in the lower estimate.
Beside the difference in the components of liberalization, it is more interesting for us to ponder the difference in trade specification used in their global CGE model. Petri et al. (2012) define their trade module by following Melitz (2003) based on product differentiation at the firm level. The GTAP model has been using the conventional Armington (1969) specification based on product differentiation at the country level. Thus, we are interested in comparing different trade specifications in global CGE model and its implications for resulting estimates of economic impacts of trade liberalization.
Dixon and Rimmer (2012) proposes an encompassing model of different trade specifications, overarching Armington (1969), Krugman (1980), and Melitz (2003), hereafter referred as AKME module...

Resource Details (Export Citation) GTAP Keywords
Category: 2015 Conference Paper
Status: Published
By/In: Presented at the 18th Annual Conference on Global Economic Analysis, Melbourne, Australia
Date: 2014
Created: Itakura, K. (4/13/2015)
Updated: Itakura, K. (4/13/2015)
Visits: 1,720
- Calibration and parameter estimation
- Model validation and sensitivity analysis
- The GTAP Data Base and extensions
- Not Applicable

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