Quantitative Trade Models: Developments and Challenges

49 Pages Posted: 3 Oct 2016

See all articles by Timothy J. Kehoe

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Pau Pujolas

McMaster University

Jack Rossbach

Georgetown University, School of Foreign Service in Qatar

Multiple version iconThere are 2 versions of this paper

Date Written: September 2016

Abstract

Applied general equilibrium (AGE) models, which feature multiple countries, multiple industries, and input-output linkages across industries, have been the dominant tool for evaluating the impact of trade reforms since the 1980s. We review how these models are used to perform policy analysis and document their shortcomings in predicting the industry-level effects of past trade reforms. We argue that, to improve their performance, AGE models need to incorporate product-level data on bilateral trade relations by industry and better model how trade reforms lower bilateral trade costs. We use the least traded products methodology of Kehoe et al. (2015) to provide guidance on how improvements can be made. We provide further suggestions on how AGE models can incorporate recent advances in quantitative trade theory to improve their predictive ability and better quantify the gains from trade liberalization.

Suggested Citation

Kehoe, Timothy J. and Pujolas, Pau Salvador and Rossbach, Jack, Quantitative Trade Models: Developments and Challenges (September 2016). NBER Working Paper No. w22706. Available at SSRN: https://ssrn.com/abstract=2846943

Timothy J. Kehoe (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
1169 Management & Economics
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National Bureau of Economic Research (NBER)

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Pau Salvador Pujolas

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Jack Rossbach

Georgetown University, School of Foreign Service in Qatar ( email )

Education City
Al Huqoul St
Doha
Qatar

HOME PAGE: http://rossbach.georgetown.domains

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