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GTAP Resource #2080

"The Doha Development Agenda and Africa: Taking Armington Seriously"
by McDonald, Scott and Karen Thierfelder

A substantial proportion of the hope for beneficial trade reform from the perspective of developing countries has been centred upon the Doha Development Agenda (DDA) (WTO, 2001). While much of this hope foundered with the lack of agreement at the Trade Ministerial meeting at Cancun in late 2003, some hope has been rekindled by the proposals about how the Doha Work Programme might progress that emerged in July 2004 (WTO, 2004). These proposals have formed the basis of much of the empirical research that has emerged since, e.g., the volume by Hertel and Winters (2005), and the conclusions from these studies suggest that the global welfare gains and the extent of poverty alleviation from the DDA may be substantial, but that the distribution the benefits may be skewed to the extent that some countries and/or regions may see little or no net gain from the DDA, and that countries that may lose out include developing countries. Such results are likely to exacerbate the concerns about the trade liberalisation agenda held by many policy makers and advisors, and thereby immediately raise the potential that subsequent negotiations will founder upon risk adverse responses by policy makers.

The implications of the DDA for developing and, especially, least developed countries are largely an empirical matter. Of particular concern are the implications for the world poorest countries, which are disproportionately concentrated in sub Saharan Africa, and yet it is arguable that African regions have been relatively neglected in published studies of the DDA. This study uses a global computable general equilibrium (CGE) model that is calibrated using the GTAP database (version 6) to partly addresses this matter by using an aggregation of the GTAP that includes eight African regions together with ten other regions.

However the specification of trade relationships as a two level nest using the Armington assumption, which is typical in global CGE models, e.g., the GTAP model, is questionable, as is the common assumption that the substitution elasticities are invariant across regions. It is argued in this paper that such a specification of trade relations can be interpreted as a contradiction of Armington’s ‘insight’ since it implies that commodities are scarcely differentiated by source. The analyses reported in this paper addresses this criticism by using multi level CES and CET functions for modelling imported demand and export supply. This more flexible structure is valuable since it allows for the degree of differentiation to be both commodity and region specific while at the same time recognizing that the least developed regions may be producing commodities that a less differentiated that those produced by more developed regions.

The simulations are stylised representations of DDA proposals. The preliminary results indicate that African economies are likely to benefit less from the DDA the less the extent of commodity differentiation between their domestic and export commodities and the greater the degree of differentiation between domestic and import commodities. In part this arises from increased competition between sources of supply and in part from the reduction in ‘market power’, through the terms of trade effects, associated with larger elasticities of substitution.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Created: McDonald, S. (5/1/2006)
Updated: McDonald, S. (5/1/2006)
Visits: 3,068
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