How Confident Can We Be in Cge-Based Assessments of Free Trade Agreements?
41 Pages Posted: 23 May 2004 Last revised: 19 Aug 2022
Date Written: May 2004
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.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Long-Run Industry-Level Estimates of U.S. Armington Elasticities
By Christine A. Mcdaniel, Michael P. Gallaway, ...
-
Internal Quota Allocation Schemes and the Costs of the Mfa
By Irene Trela and John Whalley
-
Economic Implications for Turkey of a Customs Union with the European Union
By Glenn W. Harrison, Thomas F. Rutherford, ...
-
By Glenn W. Harrison, Thomas F. Rutherford, ...
-
Trade Policy Options for Chile: A Quantitative Evaluation
By Glenn W. Harrison, Thomas F. Rutherford, ...
-
By David G. Tarr and Angelo Gurgel
-
How Interest Rates Changed Under Financial Liberalization - a Cross-Country Review
-
By Caesar B. Cororaton, John Cockburn, ...