Overview of Dynamic GTAP Model

Terrie L. Walmsley

Model by: Elena Ianchovichina and Robert A. McDougall

Center for Global Trade Analysis, Purdue University

The Dynamic GTAP Model

• Based on standard GTAP Model.

• Recursive Dynamic

• Accumulation of Capital stocks.

• Foreign Capital Ownership.

• Disequilibrium theory of Investment.

Center for Global Trade Analysis, Purdue University

Disequilibrium Approach

Equalisation of rates of return over time.

Problem 1: Implies Perfect Capital Mobility.

Gradual equalisation of rates of return.

Perfect Capital Mobility in long-run only.

Problem 2: Theory and Data - Inconsistent.

Errors in expectations

Center for Global Trade Analysis, Purdue University

Investment Theory1. Reduction of errors in expectations -

expected rate of return moves towards actual rate of return.

2. Gradual movement of rates of return to equality over time.

3. Gradual equalisation of growth rates over time to a steady-state rate. This is required to keep rates of return constant.

Developing a Common Baseline

Terrie L. Walmsley

and Robert A. McDougall

Center for Global Trade Analysis, Purdue University

1. Many GTAP users are doing Dynamic modeling and need a baseline scenario

2. Country Level (Not GTAP regions).

3. Sharing of data

4. 1990 to 2050. (2100? or pre 1990)

5. GDP, POP, Consumption, Labor, Skilled and Unskilled, Investment, Capital, Protection, Technology, Energy, Savings.

Last Year’s Meeting

Center for Global Trade Analysis, Purdue University

A Base Case Scenario1. Period: 1995 to 2020.

2. Macro: GDP, population, Labor, Skilled and Unskilled labor, Investment, Capital - 202 Countries.

3. Policy: Uruguay Round, Agreement on Textiles and Clothing, China’s Accession, Post-UR tariff reductions - GTAP regions.

Center for Global Trade Analysis, Purdue University

Macro DataGDP, Investment and Population

• Yearly, 1992 - 2007, 133 countries, WB.

Total Labor• 5-yearly, 1990 - 2020, 205 countries, WB.

Skilled Labor• 5-yearly, 1990 - 2020, 71 developing A&F.

• Single growth rate, 25 developed, WB.

Center for Global Trade Analysis, Purdue University

MacroGDPPOPGDI

Capital

Aggregate to GTAP Regions

Unskilled Labor

Skilled Labor

• Fill-in missing countries

• Extrapolate to fill-in missing years

• Yearly growth rates for 202 countries (1995-2020)

• Aggregate to GTAP regions.

Macro

Center for Global Trade Analysis, Purdue University

-15

-10

-5

0

5

10

15

Time

Gro

wth

in

Rea

l G

DP

1 NAmerica

2 WEurope

3 AusNZL

4 J apan

5 China

7 OthNICs

8 Indonesia

10 India

13 OthLatAm

16 EIT

17 SoAfrCU

19 ROW

Center for Global Trade Analysis, Purdue University

-2

0

2

4

6

8

10

12

Time

Gro

wth

in

Ca

pit

al

1 NAmerica

2 WEurope

3 AusNZL

4 J apan

5 China

7 OthNICs

8 Indonesia

10 India

13 OthLatAm

16 EIT

17 SoAfrCU

19 ROW

Center for Global Trade Analysis, Purdue University

-0.5

0

0.5

1

1.5

2

2.5

Time

Gro

wth

in

Po

pu

lati

on

1 NAmerica

2 WEurope

3 AusNZL

4 J apan

5 China

7 OthNICs

8 Indonesia

10 India

13 OthLatAm

16 EIT

17 SoAfrCU

19 ROW

\

Center for Global Trade Analysis, Purdue University

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

1995-2000

2000-2005

2005-2010

2010-2015

2015-2020

Time

Gro

wth

in

Lab

or

1 NAmerica

2 WEurope

3 AusNZL

4 J apan

5 China

7 OthNICs

8 Indonesia

10 India

13 OthLatAm

17 SoAfrCU

19 ROW

Center for Global Trade Analysis, Purdue University

Labor

• Unskilled labor - Currently use growth in total labor.

• Using difference between total and skilled labor causes problems - Developed countries.

Center for Global Trade Analysis, Purdue University

Policy• Uruguay Round - Francois and Strutt• ATC phase-out (tax equivalents) – GTAP• China’s pre-WTO tariff cuts - Fan and

Zheng• China’s WTO accession - Martin • Taiwan - Av mnfcs tariffs reduced to 4%• Post-UR - tariffs reduced to zero over 20

years

Center for Global Trade Analysis, Purdue University

1995 2000 2005 2010 2015 2020

UR and ATC Agreement (excluding

China and Taiwan) Post-UR Trade Liberalization

China’s pre-

WTO trade lib

China’s (Taiwan)

WTO Accession

Policy Shocks

Center for Global Trade Analysis, Purdue University

1995 2000 2005 2010 2015 2020

UR and ATC Agreement (excluding

China and Taiwan) Post-UR Trade Liberalization

China’s pre-

WTO trade lib

China’s (Taiwan) WTO Accession

Policy Shocks

Center for Global Trade Analysis, Purdue University

1995 2000 2005 2010 2015 2020

UR and ATC Agreement (excluding

China and Taiwan) Post-UR Trade Liberalization

China’s pre-

WTO trade lib

China’s (Taiwan)

WTO Accession

Policy Shocks

Center for Global Trade Analysis, Purdue University

Policy ShocksPolicies are implemented so that the change is the same each year.

Further work on ATC - need to be back loaded.

Elimination of quotas is treated as a reduction in export tax equivalents.

MacroGDPPOPGDI

Capital

Aggregate to GTAP Regions

Unskilled Labor

Skilled Labor

MacroGDPPOPGDI

Capital

Unskilled Labor

Skilled Labor

Adjusted URTV

Policy

Aggregate to GTAP Regions

MacroGDPPOPGDI

Capital

Unskilled Labor

Skilled Labor

Adjusted URTV

Policy

Aggregate to GTAP Regions

Aggregation Program

Center for Global Trade Analysis, Purdue University

What Now?

• Labor

• ATC - back load

• New forecasts of macro variables.

• Technological change.*Calibrate

*Growth Accounting