Abstract
Non-tariff measures (NTMs) are a prominent feature of many recent free trade agreement (FTA) negotiations. The implementation of NTMs within computable general equilibrium (CGE) models has been relatively simple to date, with modelers generally incorporating NTMs as tariff equivalents via export or import taxes or as import-augmenting technological (iceberg) change. Our study compares and contrasts two new methods with the traditional mechanisms used. The first new method is the willingness to pay method developed by Walmsley and Minor (2020); and the second, introduced here, provides a new mechanism for adjusting the exporters’ production costs directly, referred to as the export cost method. We find that the choice of mechanism can have important consequences for the estimated impact of changes in NTMs, with mechanisms that raise productivity leading to larger changes in real GDP than those that treat NTMs as associated with economic rents or demand shocks. We emphasize the importance of careful consideration being given to the nature of the NTMs being investigated, the econometric estimates of the associated trade costs, and the CGE model mechanisms being used to assess the impacts of changes in NTMs.
Highlights
Reducing the potential barriers to trade that non-tariff measures (NTMs) can create has been a prominent feature of many recent free trade agreement (FTA) negotiations, including the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP) and the Canada-European Union (EU) FTA (Walmsley, Strutt, Minor and Rae (2018); Francois and Pindyuk, (2013))
The traditional mechanisms used in computable general equilibrium (CGE) models to address NTMs have been relatively simple to date, with modelers generally incorporating them as tariff equivalents via export or import taxes; or as import-augmenting technological change, depending on the modeler’s judgment of the extent to which rents and costs matter and how rents are distributed between importers and exporters
In order to model the impact of the NTM directly on exporter costs we introduce a new variable into the model, AAAAAAii,rr,ss, that represents the productivity of sector i firms located in region r that export to region s
Summary
Reducing the potential barriers to trade that non-tariff measures (NTMs) can create has been a prominent feature of many recent free trade agreement (FTA) negotiations, including the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP) and the Canada-European Union (EU) FTA (Walmsley, Strutt, Minor and Rae (2018); Francois and Pindyuk, (2013)). The traditional mechanisms used in computable general equilibrium (CGE) models to address NTMs have been relatively simple to date, with modelers generally incorporating them as tariff equivalents via export or import taxes; or as import-augmenting technological (or iceberg) change, depending on the modeler’s judgment of the extent to which rents and costs matter and how rents are distributed between importers and exporters. Neither of these mechanisms capture the consumers’ willingness to pay nor the exporter costs directly, instead they work indirectly through trade costs and rents that could lead to misleading results
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
