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GTAP Resource #2250

"Behavioral and Entropy Parameters in the Dynamic GTAP Model"
by Golub, Alla

This paper develops econometric underpinnings for the behavioral and entropy parameters in the GTAP-Dyn model to add realism to the projections with the model. The long-run equilibrium in the model is defined as the convergence of the risk adjusted net rates of return to capital across regions. In this study, the rates of return to capital are constructed using operating surplus obtained from SourceOECD data base and capital stock documented in Larson et al. (2000). These returns are used to test the hypothesis of convergence in rates of return across countries and to measure the degree of international capital mobility. Based on econometric analysis, the null hypothesis of no convergence is rejected. The speed of convergence in net rates of return to capital in 20 OECD countries is 9% per year.
The lagged adjustment mechanisms determine regional investments which include both domestic investment and foreign investment via the global trust. Savings of the regional household, in turn, are spent on investment in the domestic economy and investments in the global trust. Period by period decisions about the investments and savings composition affect the composition of capital and allocation of wealth of a region. In this work, the parameters determining the relative rigidities of composition of capital and allocation of wealth in the GTAP-Dyn model are estimated using country portfolios data base. While there are differences in the relative rigidities of the composition of capital and allocation of wealth across countries, in the majority of countries the split between capital belonging to foreigners and capital belonging to local households is much more rigid than the split between equity in local firms and equity in foreign firms.
The results of the econometric investigation are used to set the capital mobility and rigidity parameters in the model.

Resource Details (Export Citation) GTAP Keywords
Category: Econometric Application
General Documentation
Status: Not published
Date: 2006
Created: Golub, A. (1/26/2007)
Updated: Dimaranan, B. (1/26/2007)
Visits: 1,969
- Dynamic modeling
- Calibration and parameter estimation

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