Overview of Dynamic GTAP Model Terrie L. Walmsley Model by: Elena Ianchovichina and Robert A. McDougall

Center for Global Trade Analysis, Purdue University The Dynamic GTAP Model Based on standard GTAP Model. Recursive Dynamic Accumulation of Capital stocks. Foreign Capital Ownership. Disequilibrium theory of Investment.

Center for Global Trade Analysis, Purdue University Disequilibrium Approach Equalisation of rates of return over time. Problem 1: Implies Perfect Capital Mobility. Gradual equalisation of rates of return. Perfect Capital Mobility in long-run only. Problem 2: Theory and Data - Inconsistent. Errors in expectations

Center for Global Trade Analysis, Purdue University Investment Theory 1.Reduction of errors in expectations - expected rate of return moves towards actual rate of return. 2.Gradual movement of rates of return to equality over time. 3.Gradual equalisation of growth rates over time to a steady-state rate. This is required to keep rates of return constant.

Developing a Common Baseline Terrie L. Walmsley and Robert A. McDougall

Center for Global Trade Analysis, Purdue University 1.Many GTAP users are doing Dynamic modeling and need a baseline scenario 2.Country Level (Not GTAP regions). 3. Sharing of data to (2100? or pre 1990) 5.GDP, POP, Consumption, Labor, Skilled and Unskilled, Investment, Capital, Protection, Technology, Energy, Savings. Last Year’s Meeting

Center for Global Trade Analysis, Purdue University A Base Case Scenario 1.Period: 1995 to Macro: GDP, population, Labor, Skilled and Unskilled labor, Investment, Capital Countries. 3.Policy: Uruguay Round, Agreement on Textiles and Clothing, China’s Accession, Post-UR tariff reductions - GTAP regions.

Center for Global Trade Analysis, Purdue University Macro Data GDP, Investment and Population Yearly, , 133 countries, WB. Total Labor 5-yearly, , 205 countries, WB. Skilled Labor 5-yearly, , 71 developing A&F. Single growth rate, 25 developed, WB.

Center for Global Trade Analysis, Purdue University Macro GDP POP GDI Capital Aggregate to GTAP Regions Unskilled Labor Skilled Labor Fill-in missing countries Extrapolate to fill-in missing years Yearly growth rates for 202 countries ( ) Aggregate to GTAP regions. Macro

Center for Global Trade Analysis, Purdue University

Labor Unskilled labor - Currently use growth in total labor. Using difference between total and skilled labor causes problems - Developed countries.

Center for Global Trade Analysis, Purdue University Policy Uruguay Round - Francois and Strutt ATC phase-out (tax equivalents) – GTAP China’s pre-WTO tariff cuts - Fan and Zheng China’s WTO accession - Martin Taiwan - Av mnfcs tariffs reduced to 4% Post-UR - tariffs reduced to zero over 20 years

Center for Global Trade Analysis, Purdue University UR and ATC Agreement (excluding China and Taiwan) Post-UR Trade Liberalization China’s pre- WTO trade lib China’s (Taiwan) WTO Accession Policy Shocks

Center for Global Trade Analysis, Purdue University UR and ATC Agreement (excluding China and Taiwan) Post-UR Trade Liberalization China’s pre- WTO trade lib China’s (Taiwan) WTO Accession Policy Shocks

Center for Global Trade Analysis, Purdue University UR and ATC Agreement (excluding China and Taiwan) Post-UR Trade Liberalization China’s pre- WTO trade lib China’s (Taiwan) WTO Accession Policy Shocks

Center for Global Trade Analysis, Purdue University Policy Shocks Policies are implemented so that the change is the same each year. Further work on ATC - need to be back loaded. Elimination of quotas is treated as a reduction in export tax equivalents.

Macro GDP POP GDI Capital Aggregate to GTAP Regions Unskilled Labor Skilled Labor

Macro GDP POP GDI Capital Unskilled Labor Skilled Labor Adjusted URTV Policy Aggregate to GTAP Regions

Macro GDP POP GDI Capital Unskilled Labor Skilled Labor Adjusted URTV Policy Aggregate to GTAP Regions Aggregation Program

Center for Global Trade Analysis, Purdue University What Now? Labor ATC - back load New forecasts of macro variables. Technological change. *Calibrate *Growth Accounting