Working Paper: NBER ID: w10477
Authors: Thomas Hertel; David Hummels; Maros Ivanic; Roman Keeney
Abstract: Computable General Equilibrium models, widely used for the analysis of Free Trade Agreements (FTAs) are often criticized for having poor econometric foundations. This paper improves the linkage between econometric estimates of key parameters and their usage in CGE analysis in order to better evaluate the likely outcome of a FTA for the Americas. Our econometric work focuses on estimation of the elasticity of substitution among imports from different countries, which is especially critical for evaluating the positive and normative outcomes of FTAs. We match the data in the econometric exercise to the policy experiment at hand. Then we sample from the distribution of parameter values given by our econometric estimates in order to generate a distribution of model results, from which we can construct confidence intervals. We conclude that there is great potential for combining econometric work with CGE-based policy analysis in order to produce a richer set of results that are likely to prove more satisfying to the sophisticated policy maker.
Keywords: No keywords provided
JEL Codes: C15; C68; F11; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| elasticity of substitution among imports from different sources (F14) | welfare effects of FTAs (F10) |
| high elasticity of substitution (D11) | welfare gains from FTAs (F10) |
| low elasticity of substitution (D43) | trade diversion and welfare losses (F10) |
| parameter uncertainty (C51) | welfare outcomes (I38) |
| integration of econometric methods into CGE analysis (D58) | reliability of results (C90) |