GTAP Technical Papers Copyright (c) 2013 Purdue University All rights reserved. http://docs.lib.purdue.edu/gtaptp Recent documents in GTAP Technical Papers en-us Thu, 24 Jan 2013 14:41:11 PST 3600 Towards An Integrated Land Use Data Base for Assessing the Potential for Greenhouse Gas Mitigation http://docs.lib.purdue.edu/gtaptp/26 http://docs.lib.purdue.edu/gtaptp/26 Mon, 18 Dec 2006 11:24:16 PST This paper describes the GTAP Land Use Data Base designed to support integrated assessments of the potential for greenhouse gas mitigation. It disaggregates land use by agro-ecological zone (AEZ). To do so, it draws upon global land cover data bases, as well as state-of-the-art definition of AEZs from the FAO and IIASA. Agro-ecological zoning segments a parcel of land into smaller units according to agro-ecological characteristics, including: precipitation, temperature, soil type, terrain conditions, etc. Each zone has a similar combination of constraints and potential for land use. In the GTAP-AEZ Data Base, there are 18 AEZs, covering six different lengths of growing period spread over three different climatic zones. Land using activities include crop production, livestock raising, and forestry. In so doing, this extension of the standard GTAP Data Base permits a much more refined characterization of the potential for shifting land use amongst these different activities. When combined with information on greenhouse gas emissions, this data base permits economists interested in integrated assessment of climate change to better assess the role of land use change in greenhouse gases mitigation strategies.

]]> Huey-Lin Lee et al. GTAP-AGR : A Framework for Assessing the Implications of Multilateral Changes in Agricultural Policies http://docs.lib.purdue.edu/gtaptp/25 http://docs.lib.purdue.edu/gtaptp/25 Mon, 18 Dec 2006 11:21:50 PST Global models of agricultural trade have a long and distinguished history. The introduction of the GTAP data base and modeling project represented a significant advance forward as it put modelers and trade policy analysts on common ground. After an initial generation of GTAP based modeling of agricultural trade policy using the standard modeling framework, individual researchers have begun introducing agricultural specificity into the standard modeling framework in order to better capture the particular features of the agricultural economy pertinent to their research questions. This technical paper follows in that same tradition by reviewing important linkages between international trade and the farm and food economy and introducing them into the standard GTAP modeling framework, offering a special purpose version of the model nicknamed GTAP-AGR.

We introduce this agricultural specificity by introducing new behavioral relationships into the standard GTAP framework. We focus particular attention on the factor markets, which play a critical role in determining the incidence of producer subsidies. This includes modifying both the factor supply and derived demand equations. We also modify the specification of consumer demand, assuming separability of food from non-food commodities. Finally, we introduce the important substitution possibilities amongst feedstuffs used in the livestock sector. Where possible we support these new behavioral relationships with literature-based estimates of both the mean and standard deviation of behavioral parameters. The express purpose of this is to support systematic sensitivity analysis with respect to policy reform scenarios performed with GTAP-AGR.

In addition to documenting these extensions to the standard modeling framework, the paper has an additional goal, and that is to gauge the performance of the GTAP-AGR model and how it differs from the standard GTAP framework. We do this primarily by comparing the farm level supply and demand response in terms of policy incidence for the two frameworks. In addition, we evaluate the ability of both models to reproduce observed price volatility in an effort to validate the performance of these models. Finally, we evaluate the results of the two models in a side-by-side comparison of results from full liberalization of agricultural and non-agricultural support.

]]> Roman Keeney et al. International Cross Section Estimates of Demand for Use in the GTAP Model http://docs.lib.purdue.edu/gtaptp/24 http://docs.lib.purdue.edu/gtaptp/24 Mon, 18 Dec 2006 11:21:48 PST The making of projections often requires an economy-wide perspective, and the estimation of consumer demands at the international level. In this paper, an implicit, directly additive demand system (AIDADS) is estimated using cross-country data on consumer expenditures from the International Comparison Program (ICP), and then from Global Trade Analysis Project (GTAP) data. The two data sets are found to produce results that are quite consistent despite their differing origins, and the fact that the former is based on consumer goods that embody wholesale/retail margins, while margin demands are treated separately in GTAP. Given the similarity of the results, the estimation based on GTAP data is favored because it is readily matched to input-output based production and trade data, and provides valuable new information concerning how aggregate margin expenditures are related to per capita income.

]]> Jeffrey J. Reimer et al. GTAP-M: A GTAP Model and Data Base that Incorporates Domestic Margins http://docs.lib.purdue.edu/gtaptp/23 http://docs.lib.purdue.edu/gtaptp/23 Mon, 18 Dec 2006 11:20:27 PST Transportation, wholesaling, and retailing activities are a significant segment of economic activity in many economies. The magnitude of these activities can vary greatly between products, users, and regions. However, in most applied general equilibrium (AGE) analyses, these marketing activities are not tied to specific commodities. This paper develops a model framework and database that incorporates domestic marketing margins on domestic and imported goods going to final demand or used as intermediate inputs, and margins on exports, into the standard GTAP Model. The effects of incorporating domestic marketing activities into an AGE model are illustrated by comparing the results of the standard GTAP Model to the new GTAP-M Model for several different technological change scenarios. The comparison yields two main results. First, tying the domestic marketing activities to specific commodities changes the degree of price transmission from producers to users, compared to a model that does not include margin activities explicitly. The second main result is that the magnitude of the elasticity of substitution between commodities and the composite marketing activity is very important. Allowing variable margins creates a new source of demand-responsiveness for commodities which can significantly alter the results of policy simulations.

]]> Everett Peterson Deriving a Global Social Accounting Matrix from GTAP Versions 5 and 6 Data http://docs.lib.purdue.edu/gtaptp/22 http://docs.lib.purdue.edu/gtaptp/22 Mon, 18 Dec 2006 10:41:27 PST This paper reports a method for converting versions 5 and 6 of the GTAP Data Base into a global SAM that is stored in both the GAMS data exchange (GDX) and Header Array (HAR) formats. The focus of attention is on the generation of a SAM representation of the GTAP Data Base that is fully consistent with the GTAP model; as such the resultant SAM can be readily used to calibrate a version of the GTAP model that had been coded in GAMS. The GAMS code used to generate the SAM representation of the GTAP Data Base is provided as a GAMS model library – this code has been tested with versions 5.3, 5.4 and 6.0 (pre release 5) of the GTAP Data Base.

]]> Scott McDonald et al. GTAP-DD: A Model for Analyzing Trade Reforms in the Presence of Duty Drawbacks http://docs.lib.purdue.edu/gtaptp/21 http://docs.lib.purdue.edu/gtaptp/21 Mon, 18 Dec 2006 10:40:06 PST Duty drawback schemes, which typically involve a combination of duty rebates and exemptions, are a feature of many countries' trade regimes. They are used in highly protected, developing economies as means of providing exporters with imported inputs at world prices, and thus increasing their competitiveness, while maintaining the protection on the rest of the economy. In China duty exemptions have been central to the process of trade reform and have led to a tremendous increase in processed exports utilizing imported materials. Despite the widespread use and importance of duty drawbacks, these "new trade liberalization" instruments have been given relatively little attention in empirical multilateral trade liberalization studies.

This paper presents an empirical multi-region trade model GTAP-DD, an extension of GTAP, in which the effects of policy reform are differentiated based on the trade-orientation of the firms. Both GTAP and GTAP-DD are used to analyze the impact of China's WTO accession, which involves liberalization in China from 1997 to post-accession tariffs among a number of other liberalization measures. The analysis shows that failure to account of duty exemptions in the case of China's recent WTO accession will overstate the increase in : (a) China's trade flows by 40 percent, (b) China's welfare by 15 percent, and (c) exports of selected sectors by as much as 90 percent. The magnitude of the bias depends on the level of pre-intervention tariffs and the size of tariff cuts - the larger the initial distortions and tariff reductions, the larger the bias when duty drawbacks are ignored. The bias in GTAP's estimates of China's real GDP, trade flows and welfare changes due to WTO accession increases more three times when China's pre-intervention tariffs are raised from their 1997 levels to the much higher 1995 levels. These results suggest that trade liberalization studies focusing on economies in which protection is high, import concessions play an important role and planned tariff cuts are deep, must treat duty drawbacks explicitly in order to avoid serious errors in their estimates of sectoral, trade flows and welfare changes.

]]> Elena Ianchovichina A New Regional Household Demand System for GTAP http://docs.lib.purdue.edu/gtaptp/20 http://docs.lib.purdue.edu/gtaptp/20 Mon, 18 Dec 2006 10:38:44 PST The GTAP model, versions 4.1 and lower, suffers from some defects in the implementation of the regional household demand system. Most seriously, the upper level of the demand system assumes that each regional household faces a fixed price for utility from private consumption. But with a private consumption demand system of the CDE form, the price of utility from private consumption depends on the level of private consumption expenditure. With no fixed price for utility from private consumption, the familiar Cobb-Douglas demand system does not apply. Accordingly, the upper-level demand equations are in error.

Furthermore, utility and equivalent variation are wrongly computed in simulations with non-standard settings for the CDE expansion parameters. Even with the standard settings, in multi-step simulations the utility and equivalent variation computations are inexact. The welfare decomposition inherits the defects of the equivalent variation computation.

In removing these defects we revise in passing some minor misfeatures of the old treatment: Firstly, we treat the entire final demand system as the demand system of a representative household, rather than a conglomeration of representative and region-wide demand systems (subsection 2.6). Secondly, we provide a new facility for shifting the allocation of regional income exogenously by modifying rather than overriding the final demand system (subsection 2.14). Finally, we eliminate an uninterpretable \nuisance term" from the decomposition of equivalent variation (subsection 4.3).

]]> Robert McDougall A General Welfare Decomposition for CGE Models http://docs.lib.purdue.edu/gtaptp/19 http://docs.lib.purdue.edu/gtaptp/19 Mon, 11 Dec 2006 13:00:38 PST Huff and Hertel (2001) derive a welfare decomposition for the equivalent variation in the GTAP model. The derivation appears to be very specific to GTAP. Nevertheless, it contains nearly all the ingredients required for performing welfare decomposition for any CGE model.

In this paper, the approach of Huff and Hertel (2001) is generalised to derive a welfare decomposition that can be applied to most, if not all, CGE models. General production and utility functions are accommodated, as are foreign income flows.

A brief guide to coding the proposed welfare decomposition in GEMPACK is also provided. The decomposition is applied to decomposing the equivalent variation in GTAP.

]]> Kevin J. Hanslow GTAP-E: An Energy-Environmental Version of the GTAP Model http://docs.lib.purdue.edu/gtaptp/18 http://docs.lib.purdue.edu/gtaptp/18 Thu, 07 Dec 2006 13:06:26 PST Energy is an important commodity in many economic activities. Its usage affects the environment via CO2 emissions and the Greenhouse Effect. Modeling the energy-economy-environment-trade linkages is an important objective in applied economic policy analysis. Previously, however, the modeling of these linkages in GTAP has been incomplete. This is because energy substitution, a key factor in this chain of linkages, is absent from the standard model specification. This technical paper remedies this deficiency by incorporating energy substitution into the standard GTAP model. It begins by first reviewing some of the existing approaches to this problem in contemporary CGE models. It then suggests an approach for GTAP which incorporates some of these desirable features of energy substitution. The approach is implemented as an extended version of the GTAP model called GTAP-E, which includes the standard GTAP model as a special case. In addition, GTAP-E incorporates carbon emissions from the combustion of fossil fuels and this revised version of GTAP-E provides for a mechanism to trade these emissions internationally. The resulting behavior of agents in the model is analyzed using general equilibrium demand elasticities which summarize the combined effect of the new model specification. Implications for policy analysis are demonstrated via a simple simulation experiment in which global carbon emissions are reduced via a carbon tax. Results show that incorporating energy substitution into GTAP is essential for conducting analysis of this problem. The policy relevance of GTAP-E in the context of the existing debate about climate change is illustrated by some simulations of the implementation of the Kyoto Protocol. It is hoped that the proposed model will be used by individuals in the GTAP network who may not be themselves energy modelers, but who require a better representation of the energy-economy linkages than is currently offered in the standard GTAP model.

]]> Jean-Marc Burniaux et al. Endogenous International Technology Spillovers and Biased Technical Change in the GTAP Model http://docs.lib.purdue.edu/gtaptp/17 http://docs.lib.purdue.edu/gtaptp/17 Thu, 07 Dec 2006 13:05:11 PST This paper discusses the implementation of embodied international technology spillovers in the GTAP model.

We specify a transmission mechanism for technical knowledge that assumes that knowledge is embodied in traded commodities. The usability of knowledge in the receiving country is dependent on the local absorption capacity (e.g., human capital, knowledge infrastructure) and on structural differences (e.g., factor endowments, climate) between countries.

This concept is illustrated first by modeling spillovers embodied in final products and Hicks-neutral technical change.

The bulk of the paper deals with factor-biased technical change in agriculture, and its international transmission through traded intermediate inputs.

We demonstrate how to implement embodied international technology spillovers in the GTAP model and provide some numerical illustrations which highlight production effects and welfare effects. The GEMPACK implementation, together with additional data, is provided in a set of files which accompanies this paper.

]]> Hans van Meijl et al. Scale Economies and Imperfect Competition in the GTAP Model http://docs.lib.purdue.edu/gtaptp/16 http://docs.lib.purdue.edu/gtaptp/16 Thu, 07 Dec 2006 13:05:09 PST The universe of existing CGE models can be divided into 3 broad categories. The first class of models (of which the standard GTAP model is a classic example) emphasizes the static effects of policy related to general equilibrium resource reallocation. The second involves scale economics and imperfect competition and the third involves dynamic accumulation effects. Development of the second class of models has followed a long period during which many of the basic tenants of modern industrial organization theory were integrated into the core of mainstream trade theory. The resulting class of applied models emphasizes procompetitive effects. This paper presents techniques for the incorporation of several stylized representations of scale economies and imperfect competition into the GTAP modeling framework. A numerical example is also provided.

]]> Joseph Francois Adjusting Tax Rates in the GTAP Data Base http://docs.lib.purdue.edu/gtaptp/15 http://docs.lib.purdue.edu/gtaptp/15 Thu, 07 Dec 2006 13:03:46 PST This paper describes a procedure designed for incorporating improved information on taxes into existing GTAP data aggregations. The aim of this procedure is to maintain the internal consistency of the data base while minimizing the impacts of the tax change on the value flows in the data base.

It utilizes a variant of the GTAP model, for which the model structure and parameter settings have been designed to achieve this aim. The features include Cobb-Douglas production and consumption functions, inter-intermediate input substitution (also Cobb-Douglas), universal factor mobility and fixed trade balances. Instructions and computer files for implementation of the procedure are provided in the attached files.

]]> Gerard Malcolm Theoretical Structure of Dynamic GTAP http://docs.lib.purdue.edu/gtaptp/14 http://docs.lib.purdue.edu/gtaptp/14 Thu, 07 Dec 2006 13:02:09 PST This paper documents the foreign asset ownership and investment theory of the dynamic GTAP model (GTAP-Dyn). The new investment theory offers a disequilibrium approach to modeling endogenously international capital mobility. It permits a recursive solution procedure, a feature that allows easy implementation of dynamics into any static AGE model without imposing limitations on the model's size. The method involves treating time as a variable, not as an index. Having time as a variable allows the construction of dynamic GTAP with minimum modifications to the existing structure of GTAP, by separating the theory of static GTAP from the length of run.

]]> Elena Ianchovichina et al. Modeling Country Risk and Capital Flows in GTAP http://docs.lib.purdue.edu/gtaptp/13 http://docs.lib.purdue.edu/gtaptp/13 Thu, 07 Dec 2006 08:22:15 PST This paper describes how the standard GTAP framework may be used to assess the short-run impacts of changes in international capital market conditions. It describes a technique that can be used to examine the short-run effects of changes in country risk. In the standard GTAP model investment demand is spread across regions according to a simple rate-of-return-equalizing rule. By making the risk premium in this rule explicit, we are able to examine the effects of changes in these risk premium. This work was originally developed as part of the course material for the South African GTAP short course in January 1998. South Africa has experienced a series of dramatic changes during the last decade, and these have had very significant effects on the capital account. Thus, this paper also contains an application of the technique developed to the recent South African experience, and an assessment of how well the simulated changes in this application match actual outcomes.

]]> Gerard Malcolm Long-Run Simulations With GTAP: Illustrative Results from APEC Trade Liberalisation http://docs.lib.purdue.edu/gtaptp/12 http://docs.lib.purdue.edu/gtaptp/12 Thu, 07 Dec 2006 07:31:09 PST In static applied general equilibrium models, the exogenous/endogenous split between variables (or closure) is used to infer the time frame over which the effects of a shock are simulated. This paper introduces a long-run closure for the GTAP model (Hertel and Tsigas, 1997) and uses this closure to simulate and compare the short-run and long-run effects of Asia-Pacific trade liberalisation. The approach explored here incorporates some relatively minor changes to existing GTAP theory in order to define a steady state in which growth rates of all real variables are uniform. Such uniformity must apply in the initial database (as well as in the post-shock solution). So to implement the new long run in GTAP a new initial database must first be created. Details concerning the creation of the new database are given, and results under the new approach are compared with those obtained under the old.

The emphasis of this paper is on the development of a long-run closure in which the percentage change form equations of the model and the relationships between the levels variables in the GTAP database are consistent. Further research is required into these types of long-run closures to incorporate changes in ownership of capital to ensure that changes in welfare are adequately modelled. In the results reported here, GDP is not a useful guide to national welfare.

The long-run closures introduced here are also compared with another comparative static long-run closure developed for GTAP by Francois, MacDonald and Nordström (1996).

]]> Terrie Walmsley Reconciling Bilateral Trade Data for Use in GTAP http://docs.lib.purdue.edu/gtaptp/11 http://docs.lib.purdue.edu/gtaptp/11 Thu, 07 Dec 2006 07:28:56 PST Bilateral trade flows are reported by both importers and exporters. Large discrepancies in reported import/export trade flows can be found when these two reports are compared.

The GTAP database requires consistency between the export flow and its corresponding import flow for all partner pairs. Therefore, bilateral trade data in its reported form cannot be directly used for GTAP. Various methods can be used to produce a consistent set of bilateral trade flows. However, achieving consistency alone does not necessarily provide credible trade flows.

Matrix balancing using trade totals published by international agencies is not appropriate since these totals are not reconciled but are simply totals from country-reported flows.

A method is developed with the aim of extracting the most reliable reported trade flows from reported import and export flows. Specific examples are used to illustrate how discrepancies can result from reporting errors and transport margins. Evidence is shown indicating that discrepancies often arise from erroneous reporting by one of the partners.

Systematic reporting errors associated with a reporter can be measured by the share of consistent transactions with partners. The most reliable reported flows are selected based on credibility of reporters.

The source of international bilateral trade for GTAP is United Nations COMTRADE database. It contains the complete set of countries in the world and the set of commodities covering total merchandise trade.

Since errors in reporting are country-commodity specific, data is processed at the individual country and SITC 4-digit level before aggregating to the 30-region 31- merchandise trade commodity database in version 3 of the GTAP data base.

]]> Mark Gehlhar Disaggregating Labor Payments by Skill Level in GTAP http://docs.lib.purdue.edu/gtaptp/10 http://docs.lib.purdue.edu/gtaptp/10 Thu, 07 Dec 2006 07:25:50 PST This paper outlines an approach to disaggregating labor payments in the GTAP, global economic data base. The split between low- and high-skilled labor is based on occupational data. High-skilled labor is assumed to consist of managers, administrators, professionals, and para-professionals.

Data are gathered on this occupational split, by sector, in fifteen different economies, and these are mapped to GTAP sectors. Regression analysis shows a systematic relationship between GDP per capita and the national stock of tertiary and secondary educated labor on the one hand, and the sectoral labor payments split on the other.

This model is used to predict labor splits, by sector, in the remaining GTAP regions. The results are evaluated in terms of the implied economywide skilled -unskilled labor payment ratio. Overall, the results seem promising enough to warrant inclusion in the GTAP, version 4 data base.

]]> Jing Liu et al. Liberalization and Capital Accumulation in the GTAP Model http://docs.lib.purdue.edu/gtaptp/8 http://docs.lib.purdue.edu/gtaptp/8 Wed, 06 Dec 2006 12:54:19 PST This paper explores trade policy and investment linkages in the GTAP model. This is done under alternative steady-state closure rules linking trade to consumption, production, and investment, and emphasizing the general equilibrium nature of capital accumulation mechanisms.

When policy shocks are capital friendly, induced investment may be greater than suggested by current savings rates. As a result, multiplier-type analysis can be very misleading.

The importance and direction of this magnification hinges critically on the sensitivity of savings rates with respect to real returns. As illustration, we offer a numerical assessment of the Uruguay Round, highlighting such linkages.

]]> Joseph Francois et al. Introducing Monopolistic Competition into the GTAP Model http://docs.lib.purdue.edu/gtaptp/7 http://docs.lib.purdue.edu/gtaptp/7 Wed, 06 Dec 2006 12:52:06 PST This technical paper documents one approach to incorporating monopolistic competition into the GTAP model. In this framework, consumer preferences are heterogeneous, leading to an apparent "love of variety" in the aggregate utility function for each region. The more heterogeneous are preferences, the smaller the elasticity of substitution in the aggregate utility function, and the greater the value placed on the addition of new varieties. The same is true for firms, which experience lower unit costs for differentiated, intermediate inputs, as the number of varieties on offer increases. In order to meet the diverse needs of consumers, firms differentiate their products through research and development (R&D) as well as advertising activities. These costs are assumed to be invariant to the total volume of sales for a given variety of product. With production occurring at constant returns to scale, this gives rise to declining average total costs. A zero profits equilibrium in this model is characterized by firms marking up their price over marginal costs by an amount sufficient to cover the fixed costs associated with establishing a new variety in the marketplace. Since the optimal markup is itself determined by the elasticity of substitution among varieties, this establishes a direct relationship between fixed costs and the degree of preference heterogeneity.

The main differences between the monopolistically competitive sectors and the traditional GTAP sectors may be summarized as follows:

We introduce two new variables: n, the number of firms in the industry and qof, the output per firm.

Minimum expenditure and unit costs are declining in n.

Average total costs are declining in output per firm.

Unlike the Armington specification, foreign and domestic firms compete directly in the representative consumer's utility function.

We illustrate this framework with a 2 commodity/3 region example in which we eliminate US antidumping duties on the import of Japanese manufactured goods. This example demonstrates the role of changing varieties in determining aggregate utility. It also highlights the importance of the monopolistically competitive cost structure in determining the equilibrium change in output per firm. A comparison with the standard, perfectly competitive GTAP model is also provided.

]]> Thomas Hertel et al. Decomposing Welfare Changes in the GTAP Model http://docs.lib.purdue.edu/gtaptp/6 http://docs.lib.purdue.edu/gtaptp/6 Wed, 06 Dec 2006 12:49:57 PST This paper develops a complete decomposition of the change in global welfare in the GTAP model. In particular, this money metric change is broken down into component parts, each of which relates to a quantity change interacting with a distortion in the model. This enables the user to assess, for example, how much of the gains from trade reform are attributable to a given commodity and/or a given region. The commodity and region specific changes in allocative efficiency can be further decomposed by transaction/tax instrument. We find that this greatly facilitates the presentation and analysis of results from GTAP.

We motivate the derivation of this decomposition with the case of a one region, three commodity, analogue to the GTAP model. This permits us to focus on purely allocative efficiency effects (no terms of the trade changes). Extension to the multiregion model adds the prospect of terms of trade effects on regional EV, and the multiregion decomposition isolates the contribution of tradable price changes to regional welfare. This is demonstrated in a 3 region, 3 commodity example. Finally, we offer a more complete decomposition which takes into account the impact of changes in endowments and technology on regional welfare.

This revised (2001) version introduces a number of important changes to the original (1996) paper. In particular, we build on the new final demand structure for GTAP proposed by McDougall (2001). This includes explicit recognition of changes in the marginal utility of income, as well as a per capita decomposition. We also take account of version 5.0 changes in the standard GTAP model, including the introduction of multiple international margins commodities.

]]> Karen Huff et al.