Scale Economies and Imperfect Competition in the GTAP Model

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.