Trade Policy Analysis at a Sub-National Level: Replacing Canada by Its Provinces in the GTAP Model

Abstract

This paper develops a new version of the GTAP database in which Canada is replaced by its provinces in order to allow the analysis of international trade agreements at a subnational level. The methodology in effect treats the individual provinces as separate trading entities, much like the individual Member States within the European Union, with common external trade barriers and minimal internal trade barriers. We document the procedure to develop this dataset and apply it in a demonstration simulation of the Canada-EU Comprehensive Economic and Trade Agreement. While we emphasize the naïve nature of the policy shock used to demonstrate the model – full tariff elimination and non-tariff factors not taken into account – the overall impact of the CETA appears to be reasonable both in terms of scale and in terms of sectoral impacts. Importantly, the results demonstrate that Canada’s provinces are affected very differently by a preferential trade agreement where geography and sectoral specialization favour some and disfavour others

Keywords: CGE model, GTAP, sub-national impact, provincial trade, trade policy, Canada

JEL Classification: F14, F15, F17