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).
{"title":"A New Regional Household Demand System for GTAP","authors":"Robert McDougall","doi":"10.21642/gtap.tp20","DOIUrl":"https://doi.org/10.21642/gtap.tp20","url":null,"abstract":"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).","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"222 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115656997","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper offers a graphical exposition of the GTAP model of global trade. Particular emphasis is placed on the accounting, or equilibrium, relationships in the model. It begins with a treatment of the a one region version of GTAP, thereafter adding a rest of world region to highlight the treatment of trade flows in the model. The implementation of policy instruments in GTAP is also explored, using simple supply-demand graphics. The material provided in this paper was first developed as an introduction to GTAP for participants taking the annual short course. Based on its success in that venue, this paper has been placed on the "highly recommended" reading list for individuals seeking an introduction and overview of the GTAP framework. This paper offers a graphical exposition of the GTAP model of global trade. Particular emphasis is placed on the accounting, or equilibrium, relationships in the model. It begins with a treatment of the a one region version of GTAP, thereafter adding a rest of world region to highlight the treatment of trade flows in the model. The implementation of policy instruments in GTAP is also explored, using simple supply-demand graphics. The material provided in this paper was first developed as an introduction to GTAP for participants taking the annual short course. Based on its success in that venue, this paper has been placed on the highly recommended reading list for individuals seeking an introduction and overview of the GTAP framework.
{"title":"A Graphical Exposition of the GTAP Model","authors":"M. Brockmeier","doi":"10.22004/AG.ECON.28706","DOIUrl":"https://doi.org/10.22004/AG.ECON.28706","url":null,"abstract":"This paper offers a graphical exposition of the GTAP model of global trade. Particular emphasis is placed on the accounting, or equilibrium, relationships in the model. It begins with a treatment of the a one region version of GTAP, thereafter adding a rest of world region to highlight the treatment of trade flows in the model. The implementation of policy instruments in GTAP is also explored, using simple supply-demand graphics. The material provided in this paper was first developed as an introduction to GTAP for participants taking the annual short course. Based on its success in that venue, this paper has been placed on the \"highly recommended\" reading list for individuals seeking an introduction and overview of the GTAP framework. This paper offers a graphical exposition of the GTAP model of global trade. Particular emphasis is placed on the accounting, or equilibrium, relationships in the model. It begins with a treatment of the a one region version of GTAP, thereafter adding a rest of world region to highlight the treatment of trade flows in the model. The implementation of policy instruments in GTAP is also explored, using simple supply-demand graphics. The material provided in this paper was first developed as an introduction to GTAP for participants taking the annual short course. Based on its success in that venue, this paper has been placed on the highly recommended reading list for individuals seeking an introduction and overview of the GTAP framework.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"223 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122364808","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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.
{"title":"Liberalization and Capital Accumulation in the GTAP Model","authors":"J. François, Bradley J. McDonald","doi":"10.21642/gtap.tp07","DOIUrl":"https://doi.org/10.21642/gtap.tp07","url":null,"abstract":"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.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122732421","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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.
{"title":"Decomposing Welfare Changes in GTAP","authors":"K. Huff, T. Hertel","doi":"10.21642/gtap.tp05","DOIUrl":"https://doi.org/10.21642/gtap.tp05","url":null,"abstract":"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.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"150 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131625373","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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.
{"title":"Reconciling Bilateral Trade Data for Use in GTAP","authors":"M. Gehlhar","doi":"10.21642/gtap.tp10","DOIUrl":"https://doi.org/10.21642/gtap.tp10","url":null,"abstract":"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.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127340986","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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.
{"title":"Adjusting Tax Rates in the GTAP Data Base","authors":"G. Malcolm","doi":"10.21642/gtap.tp12","DOIUrl":"https://doi.org/10.21642/gtap.tp12","url":null,"abstract":"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.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121246875","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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). Technical Paper Number 9 can be downloaded in PDF format. To print this you will need the Adobe Acrobat Reader. For those interested in replicating the results in this technical paper, an associated zip file can be downloaded. The zip file includes a readme file with detailed instructions.
{"title":"Long Run Simulations With GTAP: Illustrative Results from APEC Trade Liberalisation","authors":"T. Walmsley","doi":"10.21642/gtap.tp09","DOIUrl":"https://doi.org/10.21642/gtap.tp09","url":null,"abstract":"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). Technical Paper Number 9 can be downloaded in PDF format. To print this you will need the Adobe Acrobat Reader. For those interested in replicating the results in this technical paper, an associated zip file can be downloaded. The zip file includes a readme file with detailed instructions.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133075571","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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. Technical Paper Number 14 can be downloaded in PDF format. To print this you will need the Adobe Acrobat Reader. For those interested in replicating the results in this technical paper, an associated zip file [249K] can be downloaded. The zip file includes readme files with detailed instructions.
{"title":"Scale Economies and Imperfect Competition in the GTAP Model","authors":"J. François","doi":"10.21642/gtap.tp14","DOIUrl":"https://doi.org/10.21642/gtap.tp14","url":null,"abstract":"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. Technical Paper Number 14 can be downloaded in PDF format. To print this you will need the Adobe Acrobat Reader. For those interested in replicating the results in this technical paper, an associated zip file [249K] can be downloaded. The zip file includes readme files with detailed instructions.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129066691","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 duti
{"title":"Introducing Monopolistic Competition into the GTAP Model","authors":"T. Hertel, P. Swaminathan","doi":"10.21642/gtap.tp06","DOIUrl":"https://doi.org/10.21642/gtap.tp06","url":null,"abstract":"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 duti","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127216698","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Economists recognize that results from simulation models are dependent, sometimes highly dependent, on values employed for critical exogenous variables. To account for this, analysts sometimes conduct sensitivity analysis with respect to key exogenous variables. This paper presents a practical approach for conducting systematic sensitivity analysis, called Gaussian quadrature. The approach views key exogenous variables as random variables with associated distributions. It produces estimates of means and standard deviations of model results while requiring a limited number of solves of the model. Under mild conditions, all of which hold with respect to the GTAP model, there is strong reason to believe that the estimates of means and standard deviations will be quite accurate.
{"title":"An Introduction to Systematic Sensitivity Analysis via Gaussian Quadrature","authors":"C. Arndt","doi":"10.21642/gtap.tp02","DOIUrl":"https://doi.org/10.21642/gtap.tp02","url":null,"abstract":"Economists recognize that results from simulation models are dependent, sometimes highly dependent, on values employed for critical exogenous variables. To account for this, analysts sometimes conduct sensitivity analysis with respect to key exogenous variables. This paper presents a practical approach for conducting systematic sensitivity analysis, called Gaussian quadrature. The approach views key exogenous variables as random variables with associated distributions. It produces estimates of means and standard deviations of model results while requiring a limited number of solves of the model. Under mild conditions, all of which hold with respect to the GTAP model, there is strong reason to believe that the estimates of means and standard deviations will be quite accurate.","PeriodicalId":281904,"journal":{"name":"GTAP Technical Paper Series","volume":"167 9 Suppl 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125984336","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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