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GTAP Resource #1507

"Augmenting the GTAP Data Base with Data on Inter-Regional Transactions"
by McDonald, Scott and Yontem Sonmez

The external accounts in the GTAP database record external transactions for goods and services – the ‘External Account of Goods and Services’ in the United Nations System of National Accounts (SNA) – and (implicitly) a series of ‘balances’ on the capital account. Strictly speaking however the ‘balances’ on the capital accounts are a combination of unaccounted for transactions on the current account – current transfers and primary incomes (the SNA’s ‘External account of primary income and current transfers’) – and the capital account. In circumstances where the inter-regional transactions on the ‘external account of primary income and current transfers’ are substantial there is the potential for non-trivial distortions of the nature of inter-regional economic relationships.
In this paper a method for augmenting the GTAP database using readily available data on inter-regional transactions is developed and implemented. The data augmentation is implemented using a global social accounting matrix (SAM) representation of the GTAP database, under the maintained assumption that the GTAP database contains a full accounting of the ‘External account of goods and services’. Published data from the IMF are used to augment the global SAM.
The first stage of the process is the elimination of the regional household account for each region, which is shown to be straightforward if data on government borrowings/savings are available. The main advantages of this approach are the specification of three institutional accounts for each region – private household, government and capital account – and the identification of transactions between these institutions, i.e., net ‘direct taxes’ paid by the private household, and private household and government savings. In the second stage of the process the IMF data on inter-regional transactions are added to the database; the identified transactions include payments for factor services, household remittances and official transfers. The IMF data record these transactions as ‘inflows’ and ‘outflows’, but the totals of ‘inflows’ and ‘outflows’ for each type of transaction are not identical; the paper reports the differences and develops a simple method for balancing the accounts. The assumption that there is a full accounting for the ‘external account of goods and services’ means that for each region the balance on the capital account (implicit) in the GTAP database is adjusted by net value of these additional transactions. The revised estimates of the balances on the capital account are then compared to the IMF’s data for balances on the capital account to ensure that the balancing process has not introduced unreasonable/unrealistic changes to the database. The final stage of the process is the development of a reduced form of the global SAM that restores the regional household accounts and is therefore consistent with the structure of version 5 of the GTAP database.
In order to illustrate the potential benefits from augmenting the GTAP database two simple policy experiments are implemented. The first focuses upon trade liberalisation in a developing region where official transfers are a large component of government revenue, while the second examines a tax replacement scenario wherein a direct tax is used to replace revenue lost from an indirect tax. Both experiments indicate that models estimated using this augmentation of the GTAP database may, under certain circumstances, produce substantially different results and hence may enhance the quality of the analysis.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: McDonald, S. (5/1/2004)
Updated: Bacou, M. (6/4/2004)
Visits: 3,953
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