Lesson 5.5: GTAP

Icône de l'outil pédagogique Author

Marijke Kuiper


Icône de l'outil pédagogique What is GTAP


GTAP stands for Global Trade Analysis Project, a global network of researchers and policy makers conducting quantitative analysis of international policy issues. The key product of the network is the GTAP database describing the entire economies of 87 countries or regions[1] in terms of 57 sectors, as well as all bilateral trade flows between these regions. This database forms the basis for a range computable general equilibrium (CGE) models that start from the same theoretical framework but are adapted to addressing different economic contexts or research questions.



[1] The number of regions in the database is increasing with every release as regional aggregates are split in individual countries when the necessary data are contributed to the GTAP network. The next release (version 7) is expected to have 104 countries/regions.


Icône de l'outil pédagogique What can a GTAP model do?

Not surprising given its name, the majority of models using the GTAP database focus on assessing trade policies. In the current World Trade Organization (WTO) negotiations on reducing barriers to international trade, about all quantitative analyses of possible agreements use a CGE model based on GTAP data. These assessments can provide indications of changes in, for example, production by sector at national level, trade flows between countries, consumption at national level, tariffs and tax incomes, wages and prices, and welfare impacts of a change in trade policy.

The prominent role of GTAP in the trade policy debate has inspired further developments of the database and models to deal with changes over time (the regular model is static and thus does not provide trajectories of changes over time), international migration (capturing the flow of persons and remittances between nations), energy use (capturing the impact of biofuels in relation to developments in markets for non-renewable fuel) and climate change. For the latter additional databases are developed with more detail on land use (production by agro-ecological zones in each region) and carbon sequestration. The latter developments have led to an increasing role of GTAP-based analyses in the Intergovernmental Panel on Climate Change (IPCC) to assess policies for limiting greenhouse gas emissions.

 


Icône de l'outil pédagogique What is the role of GTAP in SEAMLESS?
Within SEAMLESS GTAP serves as a complement to the EU and global level analyses of SEAMCAP that are limited to the agricultural sector. By combining the two models we obtain detailed modelling of the agricultural sector from SEAMCAP while accounting for feedback loops between agricultural and non-agricultural sectors from GTAP. GTAP thus accounts for changes in the rest of the economy which may affect agriculture, for example by rising wages, increasing the costs of inputs like fertilizer that are produced by the chemical industry, or by changing demand for agricultural goods because of changes in income of consumers.

Icône de l'outil pédagogique What GTAP model is used in SEAMLESS?

In the context of SEAMLESS, the standard GTAP model as maintained by the GTAP center is used. This model has been adapted in terms of sectors and regions to obtain the best possible fit with SEAMCAP. A region can be an individual country (like all 27 EU member states) or a group of countries (like sub-Sahara Africa). In total, the GTAP model contains 55 regions, which include all 27 EU member states as individual countries.

For every region in the model there is a single representative household demanding consumption goods (including savings) on the behalf of all private households and a government (Figure 1). Total demand is determined by income earned by land, labour and capital as well as income from taxes. The demand for goods can be met by national producers or by imports. For each sector there is a single producer, i.e. there is a one producer of agricultural goods, one for labour intensive manufactured goods, one of services etc. Since SEAMCAP models agriculture in detail, all agricultural sectors in GTAP are aggregated to a single agricultural sector.

 

Figure 1. Simplified illustration of a regional model within the GTAP model.
 
The model traces trade between all regions in the model and accounts for trade barriers between regions through inclusion of tariffs (Figure 2). These tariffs may drive a wedge between prices in regions, i.e. the same product may be more expensive in one region than in another because of tariffs. Whereas international trade is modelled by tracing all bilateral flows international capital flows are governed by a global bank. This bank collects savings and uses these for international investments. Since savings are pooled by the global bank before being sued for investments there is no tracing of bilateral capital flows.
 
Prices of goods and of land, labour and capital in each region adjust to assure that both national and international demand and supply are equal, hence the term general equilibrium models. Thus when a policy simulation is run, for example lowering tariffs between regions, the model computes by sector for each region production, consumption and trade (both imports and exports) as well as price levels that result in equilibrium at national and international markets.

 

 
Figure 2. Simplified illustration of links between regional models in the GTAP model.

 


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