An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA

2003

164 citations recorded by the source corpus.

This paper evaluates the performances of three of the most prominent multisectoral static applied general equilibrium models used to predict the impact of the North American Free Trade Agreement. These models drastically underestimated the impact of NAFTA on North American trade. Furthermore, the models failed to capture much of the relative impacts on different sectors. Ex-post performance evaluations of applied GE models are essential if policymakers are to have confidence in the results produced by these models. Such valuations also help make applied GE analysis a scientific discipline in which there are well-defined puzzles with clear successes and failures for competing theories. Analyzing sectoral trade data indicates the need for a new theoretical mechanism that generates large increases in trade in product categories with little or no previous trade. To capture changes in macroeconomic aggregates, the models need to be able to capture changes in productivity.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d52bcb436e071a9995e4e6f1797d5e43d2dd3f63

Citations in the corpus

• Demystifying modelling methods for trade policy (2005, unknown): “Kehoe (2003) has emphasized the need for systematic ex-post evaluations of CGE simulations.”
• Validating Energy-Oriented CGE Models (2009, unknown): “However, Kehoe (2003) criticizes CGE models for performing poorly in evaluating the impacts of the North America Free Trade Agreement.”
• Trade and Investment under Policy Uncertainty: Theory and Firm Evidence (2015, unknown): “One 11Limão (2006) and Karacaovali and Limão (2008) …nd that preferences provided by the US and EU respectively caused them to maintain relatively higher multilateral tari¤s against the rest of the world in the Uruguay Round.”
• How Has NAFTA Affected the Mexican Economy? Review and Evidence (2004, unknown): “A recent paper by Kehoe (2003) argues that CGE models severely underestimated NAFTA*s impact on the volume of regional trade.”
• Quantifying the Impact of Services Liberalization in a Developing Country (2006, unknown): “5 Kehoe (2002) discusses the importance of incorporating changes in trade and investment flows in sectors where they had been absent in the computation of new equilibrium outcomes.”
• An Advanced Guide to Trade Policy Analysis: The Structural Gravity Model (2016, unknown): “The derivation of the gravity on the demand side follows Larch and Wanner (2014) and Anderson and Yotov (2016), while the derivation of the gravity system on the supply side is based on Eaton and Kortum (2002).”
• Market Penetration Costs and the New Consumers Margin in International Trade (2008, unknown): “21Kehoe and Ruhl (2003) report similar …ndings by comparing a large number of country pairs with and without major trade liberalizations.”
• How Important Is the New Goods Margin in International Trade? (2013, unknown): “Kehoe ð1995Þ provides a chronicle of Mexican trade policy from 1982 to 1994, and General Agreement on Tariffs and Trade ð1993Þ provides detailed data and documentation.”
• Estimates of the Trade and Welfare Effects of NAFTA (2012, unknown): “…in general see Brown, Deardorff, and Stern (1994), Brown and Stern (1989), Kehoe and Kehoe (1994), and for the case of NAFTA refer to Fox (1999), Kehoe (2003), Rolleigh (2008) and Shikher (2010). at Y ale U niversity on O ctober 2, 2015 http://restud.oxfordjournals.org/ D ow nloaded from our…”
• Structural Estimation and Solution of International Trade Models with Heterogeneous Firms (2011, unknown): “literature critiqued by Kehoe (2005). In a sensitivity run we set the Armington elasticity for manufacturing at a+1=5.”
• Exporting under trade policy uncertainty: Theory and evidence (2014, unknown): “For example, Peru and Colombia received unilateral preferences along with other Andean countries through the ATPA, and then sought FTAs with Limão (2006) and Karacaovali and Limão (2008) find that preferences provided by the US and EU respectively caused them to maintain relatively higher multilater”
• Commodity Price Volatility in the Biofuel Era: An Examination of the Linkage between Energy and Agricultural Markets (2010, unknown): “…on the importance of utilizing econometric work in parameter estimation, to more recent calls for rigorous historical model testing (Hertel 1999; Kehoe 2003; Grassini 2004), it is clear that AGE models must be adequately tested against historical data to improve their performance and ensure…”