GTAP Resources: Resource Display
| GTAP Resource #1116 |
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"An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA" by Kehoe, Timothy Abstract What Went Wrong in Modeling the Impact of the North American Free Trade Agreement? Applied general equilibrium models were the only analytical game in town when it came to analyzing the impact of NAFTA in 1992-1993. Typical sort of model: Static applied general equilibrium model with large number of industries and imperfect competition (Dixit-Stiglitz or Eastman-Stykolt) and finite number of firms in some industries. In some numerical experiments, new capital is placed in Mexico owned by consumers in the rest of North America to account for capital flows. Examples: Brown-Deardorff-Stern model of Canada, Mexico, and the United States Cox-Harris model of Canada Sobarzo model of Mexico In 1993 Ross Perot said The reason that most U.S. policymakers are so blind to the job shifting that will occur if NAFTA is ratified is that they rely on dozens of “reputable” academic studies that say it won’t happen. Yet these studies are based on unrealistic assumptions and flawed mathematical models…Let’s be clear about this: these studies certainly do not provide a basis on which Congress can make an informed decision about NAFTA. Ross Perot with Pat Choate, Save Your Job, Save Our Country: Why NAFTA Must Be Stopped — Now! 1993. In his comments, Timothy J. Kehoe observes that investment flows have generated a sharp increase in Mexican investment, GDP, and trade deficits. Policy makers have become concerned about the sustainability of this behavior, an issue not addressed by the CGE models. Kehoe also stresses that CGE remains at an early stage of development. He emphasizes the need for expost verification to achieve validation of these models. Kehoe also argues for more work on the impact of NAFTA on the behavior of financial intermediaries, policy credibility, demographic structures, and total factor productivity growth. Nora Lustig, Barry P. Bosworth, and Robert Z. Lawrence, editors, North American Free Trade: Assessing the Impact, 1992. |
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- Calibration and parameter estimation |
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Last Modified: 9/15/2023 2:05:45 PM
