Theoretical Structure of Dynamic GTAP

Abstract

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.