1. TSCAPE: A Time Series of Consistent Accounts for Policy Evaluation Part II: Testing Edward J. Balistreri Alan K. Fox U.S. International Trade Commission Washington, DC

2. Introduction Construct consistent social accounts for United States  Cover 1978 to 2001  Aggregate to two-digit SIC level Basic one-country model for analysis Testing the Armington

3. Data Sources for TSCAPE: U.S. Department of Commerce Bureau of Economic Analysis (BEA)  Value added by factor and sector (approx. 2-digit)  Benchmark IO tables (1982, 1987, 1992, 1997)  National Income and Product Accounts (NIPA) Trade Policy Information System (TPIS)  Trade by TSUS, Schedule B (1978-1988)  Trade by HTS 10-digit (1989-2001)

4. Scope of TSCAPE Defined by quantity index for GDP by industry (GDPI)  Available at 2-digit level  From 1977 to present Defined by TPIS  Highly disaggregated  Available from 1978 to present

5. Discontinuity in Trade Data 1978 to 1988: TSUS, Sch. B to SIC 4 digit  Based on DOC concordance  Only half of lines originally mapped to SIC  DOC concordance substantially revised and extended by authors 1989 to 2001: HTS10 to SIC 4 digit  DOC concordance used unchanged No handshake between TSUS and HTS10 Discontinuity between 1988 and 1989

6. TSCAPE Use Matrix Architecture

7. TSCAPE Make Matrix Architecture

8. Establish Consistency Value added matrix:no changes Merchandise trade:no changes Minimize loss function subject to  Zero profit condition  No excess demand  Income balance

9. Resulting Baseline Labor’s value share of GDP averages 58% Imports’ share of GDP grew from 7% to 16% Exports’ share of GDP grew from 6% to 12% Protection fell dramatically in some sectors  Electronic Equipment (down by 86%)  Industrial Machinery (down by 88%)

10. Gross Domestic Product Billions of 1996 Dollars

11. Aggregate Imports and Exports Billions of 1996 Dollars

12. Relative Growth of Trade and Income Index, 1978 = 1.0

13. The TSCAPE Model Single country static general equilibrium Each year independent (no intertemporal linkage) Final demand Household with Cobb-Douglas utility Government Spending and Investment fixed  Production a nested CES function  Factor supplies (K,L) fixed Trade balance fixed

14. Production

15. Product and Commodity Structure

16. Experiment Structure Set distortions to level in 1979 (Tokyo Round phase-in begins in 1980) Roll back all liberalization 1980-2001 Set tau (elasticity of transformation) high so that Armington “carries the freight” Vary sigma, Armington elasticity Goal: Match import growth to GDP growth

17. Relative Growth of Trade and Income Index, 1978 = 1.0

18. Measure of Fit: Squared Error of GDP and Imports Sigma (Armington) Tau (CET) Measure of Fit 510015.77 101009.83 201003.78 301001.68 401001.08

19. Removal of Liberalization Sigma=5, Tau=100, MOF=15.77

20. Removal of Liberalization Sigma=40, Tau=100, MOF=1.08

21. For More Information ebalistreri@usitc.gov http://www.georgetown.edu/faculty/ejb37/ afox@usitc.gov http://www-personal.umich.edu/~alanfox

22. Construction of Social Accounts Calculate Complete VA matrix with GDPI data on factor payment shares by industry  Aggregate GDP is then consistent with NIPA Calculate real intermediate purchases by sector  If qUse available,  If not, use interpolated BEA IO data Build Make matrix  Convert to coefficients, interpolate  Multiply by real gross output from GDPI Calculate final demand components

23. Optimization Problem: Variables Free Variables GO i Gross output by industry IUse g,d Final demand by commodity and category (except trade) Φ i Scalar for total intermediate demand by industry Fixed Parameters TgtIUse g,d Target final demand by commodity and category TgtUse g,i Target intermediate use of commodity by industry Tgtξ d Aggregate final demand mix from NIPA accounts

24. Optimization Problem: Specification Subject to