global trade analysis: introduction to the gtap modelling framework frank van tongeren trade and...
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Global Trade Analysis: introduction to the GTAP modelling framework
Frank van TongerenTrade and development division, LEI
Motivation for GTAP
Increasing demand for quantitative analysis of global trade issues
E.g., WTO Doha round, Kyoto agreement, EU integration, Regional integration
Historically analysis has been done “in-house” in a few agencies: USDA, FAO, World Bank
Methodology is often poorly documented. Rarely subjected to peer review. Data base is treated as a strategic asset
and therefore not shared with others. Projects rarely survive change of
administration. Unfavorable findings result in termination.
Limitations of Agency-based Projects
Limitations of Projects Based in Academia
Limited financial support. Little incentive to invest in data base. Tendency to keep model and data until
it has outlived its usefulness. Limited contact with decision makers
who are the ultimate “clientele” for much of this work.
The GTAP Approach
Publicly funded project, based in academia.
Data base and standard model: fully documented publicly available at modest cost easy to use with regular courses accessible to non-modelers.
Key Resources: Data Base
Philosophy: Find the best person in the world to do the job GTAP as an assembler of information
Reconciled bilateral trade data and shipping margins: USDA
Protection data: WTO/WBank/UNCTAD, AMAD National data bases: national collaborators
e.g Version 5 EU-15 Input-Output tables, LEI with funding from DG-ENVIRON
Production cycle database: 18-24 Months
GTAP v6 commoditiesPrimary agriculture Paddy rice
WheatCereal grains necVegetables, fruit, nutsOil seedsSugar cane, sugar beetPlant-based fibersCrops necCattle,sheep,goats,horsesAnimal products necRaw milkWool, silk-worm cocoons
Natural resource based activitiesForestryFishingCoalOilGasMinerals nec
Processing agriculture and foodMeat: cattle,sheep,goats,horseMeat products necVegetable oils and fatsDairy productsProcessed riceSugarFood products necBeverages and tobacco products
Manufacturing TextilesWearing apparelLeather productsWood productsPaper products, publishingPetroleum, coal products
Chemical,rubber,plastic prods Mineral products necFerrous metalsMetals necMetal productsMotor vehicles and partsTransport equipment necElectronic equipmentMachinery and equipment necManufactures nec
Services ElectricityGas manufacture, distributionWaterConstructionTradeTransport necSea transportAir transportCommunicationFinancial services necInsuranceBusiness services necRecreation and other servicesPubAdmin/Defence/Health/
EducatDwellings
Additional data on energy use:
Coal, oil, gas, petroleum products, electricity
Volumes (Mtoe) and prices
Harmonized and consistent
Biomass small share -> not (yet) separate
GTAP v6 regions
87 regions (built from 226 members) Economy-wide coverage Input-Output tables Bilateral trade flows Policy data Benchmarked to year 2001
Key Resource: a standard multi-region CGE model
profit maximizing behaviour of producers (input restraint)
utility maximizing behaviour of consumers(budget constraint)
Armington approach: bilateral trade Computable General Equilibrium (CGE): all
markets clear simultaneously Product markets Factor markets (capital, labour, land, natural
res.) Prices and quantities determined by model
Economics of production: Cost Minimizing Behavior
Behavioural equations are derived from an economic decision problem:
Choose cost minimizing input mix, given the technical characteristics of production, and given prices:
Cost function: C(w, q) = min wi xi st.: q = f(x)
C(w, q)Factor demand: ----------- = xi(q, w) (Shephard’s lemma)
wi
Pricing
Constant returns to scale production function means:average cost = marginal cost
Competitive pricing at marginal cost. Therefore revenue = costs
Zero Pure Profits:
e trptrptrperpe
rprp
QFPFQFEPFE
QOPS
,,,,,,,,
,,
Market clearing
On all markets we have:Qd = Qs
Product markets: 56 commodities Factor markets: Land, SkLabour,
UnskLabour, Capital, Nat resources Savings = Investment ; Global bank
Small example: EU sugar reforms
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
European Union 27
ACP sugar protocol countries
EBA (non ACP) countries
Brazil
Sugar dev countries no prefs
Thailand &Australia
All other countries
EBA scenario EU July 2004 reform proposal + EBA
• EBA: LDCs get quota & duty free access to EU
• EU reforms:
Beet quota down,Internal support price down
% change in sugar output under EBA and EU reform
EU sugar reforms: welfare effectsNational income effects, EV
-1000
-800
-600
-400
-200
0
200
400
600
800
1000
European Union27
ACP sugarprotocol countries
EBA (non ACP)countries
Brazil Sugar devcountries no prefs
Thailand&Australia
All other countries WORLD
mil
lio
n U
S$
EBA scenario
EU July 2004 reform proposal + EBA
4600
Trade diversion
effect
Modifications to standard GTAP model
Network members add new model developments:
For example: imperfect competition and increasing returns to
scale international technology spillovers Modelling specific policies, e.g EU CAP Projections in time Dynamic extensions (GTAPDyn) Modelling of agricultural supply GTAP-E: energy model
GTAP organization
Core funding from international consortium, 18 international and national agencies, e.g:
• WTO, World Bank, UNCTAD, USDA/ERS, OECD,
MIT, USEPA ...LEI (member since Nov. 96)
• Each represented on the advisory board
• Headquarters Purdue Univ., Tom Hertel
Growth of GTAP Consortium
02468
101214161820
#
Five international: OECD, WB, WTO, UNCTAD
11 national: Australia, Denmark, Germany, Netherlands, Japan, US
Two non-profit
GTAP organization (II)
Open network of contributors
• more than 350 course alumni
• annual global conference
• Linked through WWW for distribution of database, software and publications: www.gtap.org
Summary
GTAP relatively unique in economics, but similar to consortia in sciences
Success of project traced back to courses Consortium key to long term viability: provides
$, but also key data inputs and much needed direction
Modest contribution by many agencies provides long run stability
Network externalities
There are many ways to get involved
Short course attendance = usually first step Purchase database and Gempack software Attend annual GTAP conference (approx
150 specialists in gobal economic analysis meet) 2003: The Netherlands, The Hague 2004: USA, Washington DC 2005: Germany, Lübeck