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GTAP Resource #5617

"A GDyn model with USAGE-type Investment Function and Labor Market Mechanism"
by Xiao, Jingliang and Erwin Corong

The dynamic GTAP model, GDyn, extends the standard (static) GTAP model to include capital accumulation, adaptive expectation theory of investment and international capital mobility. In this paper, we implement in GDyn, the VU-National/MONASH/USAGE-type (hereafter USAGE-type) Investment theory and sticky/flexible wage mechanism originated by Dixon and Rimmer (2002). The USAGE-type investment theory considers the risk-averse behavior of investors, which in turn improves GDyn model robustness when constructing baselines or performing policy simulations. Furthermore, a USAGE-type investment function provides more flexibility in modeling investor’s expectation, i.e., either static or rational expectation. The sticky/flexible wage mechanism allows real wages to be sticky in the short run and flexible in the long run—both of which are in effect within the simulation period. This has the advantage of combining the two mutually exclusive labor market closure options in GDyn.

Another significant adjustment we make in this paper is to disaggregate the region-specific investment coefficients and variables (e.g., VKB, VKE, etc.) by sector. This allows for sector-specific investment function/behavior within each region, compared to the current GDyn model which only has a region-wide investment function. And the assumption of the mobility of capital across sectors within regions will exaggerate the reaction of sectors to policy shocks. We end this paper by comparing the results from the existing and modified GDyn model using the same shocks based on a study of NAFTA's renegotiation by Ciuriak et al, (2017).

Resource Details (Export Citation) GTAP Keywords
Category: 2018 Conference Paper
Status: Published
By/In: Presented at the 21st Annual Conference on Global Economic Analysis, Cartagena, Colombia
Date: 2018
Created: Xiao, J. (4/15/2018)
Updated: Xiao, J. (4/15/2018)
Visits: 2,584
- Dynamic modeling
- Multilateral trade negotiations
- The GTAP Data Base and extensions
- North America

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