Modelling the Impact of Trade Liberalisation
A Critigue of Computable General Equilibrium Models
This hard-hitting research report presents a rigorous critique of the most widely used trade models based on computable general equilibrium (or CGE) models. The authors present concise analytical arguments explaining the fundamental weaknesses of typical CGE models. They show that these models tend to make unrealistic assumptions about the macro-economy and do not allow an accurate estimation of the welfare gains that trade liberalisation is supposed to induce. The report appeals for honest simulation strategies showing a variety of possible outcomes, which would enable policy-makers to assess the different scenarios for themselves.
|Introduction and overview|
|Part I: CGE Models of Trade Liberalisation in Practice|
|Operational model details|
|Model specification and macro causality in a closed economy|
|Open economy (Armington) macro-economics|
|The Armington fiscal effect|
|Part II: Simulations and Results|
|Aim and scope|
|Comparing models – our model versus World Bank models|
|Appendix 1: The Social Accounting Matrix (SAM)|
|Appendix 2: The Model in Algebra|
Lance Taylor is the Arnhold Professor of International Cooperation and Development and Director of the Center for Economic Policy Analysis at the New School University. He has been a professor in the economics departments of Harvard and the Massachusetts Institute of Technology, as well as being a visiting professor at the University of Minnesota, the Universidade da Brasilia, Delhi University, and the Stockholm School of Economics. He moved to the New School in 1993.
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