An Enhanced Analytical Framework for Evaluating the Effects of Trade Costs along Global Value Chains

Abstract

In this paper, I present a new multi-regional input-output (MRIO) database with tariffs differentiated by agent. To construct the MRIO, I apply the Broad Economic Categories (BEC) system of concordances to detailed trade and tariff data from the Tariff Analytical and Simulation Tool for Economists (TASTE) Database version 9 to obtain measures of trade and tariff revenues by end-use. I use this trade data by end use to expand the GTAP Database version 9.2, thus incorporating direct linkages from foreign suppliers to domestic producers, investors, and consumers. Further, the new database comprises distinct composite tariff rates for producers, investors, and consumers. I use a constrained optimization procedure to ensure MRIO trade flows aggregate to the original GTAP Database. Through illustrative simulations, I demonstrate the effect of (1) new cross-border trade linkages and (2) tariff escalation for trade policy analysis. I further demonstrate how the addition of differentiated tariffs in the MRIO enhances policy analysis beyond preceding versions of the MRIO.JEL codes: E01, E16, F13, F15.

GTAP-VA: An Integrated Tool for Global Value Chain Analysis

“…2 In particular, the GTAP-SC model applies the Armington assumption at the agent level and incorporates econometrically estimated parameters describing how economic agents respond to changing relative prices of alternative suppliers of intermediate inputs (Hertel et al, 2014). This treatment allows import prices to differ by agent and this makes possible a better representation of the trade policy impact on firms' import choices (Walmsley et al, 2014;Carrico, 2017).…”

ASEAN and Global Value Chains: Locking in Resilience and Sustainability

“…Fortunately, differences in the GVC measures calculated from the current model and other data sets are not large. Researchers have rebuilt the GTAP model to use end-user information (Carrico 2017), but that approach still lacks the advantages associated with a widely used, frequently refreshed, GTAP data system.…”

“…Although CGE and GVC models share an ancestry in input-output analysis, few applications link the two methodologies, and those that do often focus simply on adjusting CGE databases using MRIO data sources (for example Carrico 2017). Yet, CGE applications often involve policy changes that significantly affect GVCs because their production arrangements require frequent border crossings.…”

Reflections on the Economic Modelling of Free Trade Agreements

“…47 For example, does trade between two 45 See the Global Trade Alert database (www.globaltradealert.org). 46 Carrico (2017) discusses in detail the development of the GTAP MRIO and reviews other approaches to MRIO development as well as issues of feasibility and limitations. 47 Mode 1 -cross-border supply: from the territory of one country into the territory of another country;…”