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GTAP Events: Center Seminar Series

"Examining Trade Response of Armington-Krugman-Melitz Encompassing Module in a CGE Model"
by Ken Itakura

This paper examines how trade flows respond to liberalization shock within a framework of Armington-Krugman-Melitz Encompassing (AKME) module in the GTAP model. We follow the modeling strategy in Dixon and Rimmer (2012) and Oyamada (2013). We modify the comparative static GTAP model, which is a global CGE model widely used by researchers for quantifying policy impact. We redefine trade flow information stored in the benchmark GTAP Data Base to accommodate “sourcing-by-agent” import demands that enables us to decompose regional trade response into agent specific responses. We run a set of simulations of trade liberalization to draw a comparison of different trade specifications in detail. Our key findings from the simulation experiments are summarized as follows: Impacts of liberalization on regional trade are amplified as we switch trade specification from the standard GTAP model to Armington, Krugman, and Melitz in turn. By introducing “sourcing-by-agent”, we identify the large intra-manufactured trade responses. Further decomposition reveals that intensive margin trade effects are more pronounced in Krugman specification, whereas extensive margin trade effects are significant in Melitz specification. Since there exits only a handful of attempts to compare the trade effects by examining the AKME module, we provide another results for further insights.

Date/Time: 2/3/2015   02:30 PM - 04:00 PM
Location: KRAN 661