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Tools for Trade Policy Analysis Mr. Sachin Kumar Sharma, Centre for WTO Studies Indian Institute of Foreign Trade, Delhi Email: [email protected] Myanmar and the Asia-Pacific region: Role of policy research in economic and trade reforms Yangon University of Economics, 19-21 February 2015 CGE Modelling Computable General Equilibrium. General Equilibrium “Economy-wide”, enough time to achieve “equilibrium”. Computable Solution can be computed. Also called Applied GE. Components Agents: Producers and Consumers. Factor Endowments: Land, Labour, Capital, Natural Resources, etc. Commodities: Different products - both goods and services in the economy Markets: for commodities and factor endowments Equilibrium conditions: In N-1 markets: Walras’ Law Welfare Analysis Importance of CGE modeling • Limitations of Partial Equilibrium and Econometric: – Resources are finite: – Factor income is taken as exogenous, so we cannot explain the rise in income arising from rise in factor returns, etc. – Other features like aggregate output are taken as exogenous in some PE models When and where to use CGE? • International Trade Policies and their economy-wide impacts like FTA • Other Public Policy Impacts in different sectors • Energy and Environment • Impacts of technology/technical change… When not to use CGE? • to capture economy-wide impacts and to account for the fact that resources are limited! • NOT to use CGE – Small sector/region/issue with rich data on particular aspects: impossible to incorporate into a CGE model, e.g., time-series/survey data. – Complex model capturing structural details of a region/sector that cannot be fed into a CGE framework. – Where one requires statistical significance of the results (although there is a way of doing a similar thing in CGE) How to get the best of both worlds? • Feeding the results from “structurally rich” PE model into CGE • Using econometric estimates to calibrate the parameters in CGE • Linking a specialized PE model to CGE • Feeding the CGE results into a PE/econometric model An Introduction to the GTAP Model • A multi-region multi-sector, static model • Model components: – Regional Household RH: Receives all income and spends based on Cobb-Douglas UF. – Government Consumption: (From RH) – Private Consumption: (From RH) – Investment, Global Bank, and Savings : (From RH) – Firms: Intermediate and factor demand; product demand from G & P (CDE); Investment from savings; 0-profit, CRS. – International Trade: Armington; Domestic-import CES – International Transport Services – Equilibrium Conditions Working with RunGTAP • Free Download at www.gtap.org • GTAP data base: GTAP 6 version free. (Myanmar data) • Closure • Shocks • Solve • Results: Viewsol, Viewhar GTAP Data Base GTAP Data Base Reference Year Regions Sectors 8 2004 & 2007 129 57 7 2004 113 57 6 2001 87 57 5 1997 66 57 4 1995 45 50 3 1992 30 37 2 1992 24 37 1 1990 15 37 How to run simulation • DATA Aggregation: How to do data aggregation? (https://www.gtap.agecon.purdue.edu/databa ses/archives.asp) • GTAP STATIC model: How to load data to GTAP model • Shock • Result • Interpretation • Exercise Thank you! 12