HOW TO MODEL TRADE SINGLE COUNTRY MODELS VS. WORLD TRADE MODELS
SINGLE COUNTRY MODELS Some lessons from Asia and Africa using micro-macro simulation approaches –Bangladesh –India –Nepal –Pakistan –Philippines –Benin –Senegal Source: Cockburn, Decaluwe and Robichaud, 2007
TRADE AND OUTPUT EFFECTS Industrial production increases relative to agricultural output because: (i) import price reductions have a relatively small effect on domestic demand for local products, given imperfect substitutability and low initial levels of import penetration; (ii) industrial exports respond positively to tariff cuts; (iii) input costs fall faster in industry than in agriculture.
WELFARE AND POVERTY IMPACTS Trade liberalization increases total welfare Trade liberalization reduces overall poverty but with different sectoral effects Trade liberalization tends to lower urban poverty Trade liberalization may increase rural poverty
CLOSURE MATTERS Modelling domestic savings: Senegal vs. Benin Factor mobility assumption: short-run vs. long- run (i.e. change σ f for capital from 0 to -1) Government closure assumptions: revenue effects (sales tax vs. production/income tax)
MULTI-COUNTRY MODELS GTAP (GLOBAL TRADE ANALYSIS PROJECT) –Local closure vs. global closure rules –Product differentiation by country –International factor mobility –Political reaction functions