Agriculture Reference
In-Depth Information
Bref ntroducton to the GTAP model
GTAP is a multi-region, multi-sector, computable general equilibrium
model, with perfect competition and constant returns to scale. The model
is described fully in Hertel (1997). It has been used widely to analyse the
mpacts of changes n trade polcy.
In the GTAP model, each country or region is depicted within the same
economc structure. The consumer sde s represented by the country or
regional household to which are assigned the income of factors, tariff
revenues and taxes. The country or regonal household allocates ts
income to three expenditure categories: private household expenditure,
government expenditure and savings. For the consumption of the private
household, the non-homothetic Constant Difference of Elasticities (CDE)
function is applied. Firms combine intermediate inputs and primary factors,
land, labour (skilled and unskilled) and capital. Intermediate inputs are
composites of domestic and foreign components, and the foreign component
s dfferentated by regon of orgn (the so-called Armngton assumpton).
With respect to factor markets, the model assumes full employment,
wth labour and captal beng fully moble wthn regons but mmoble
nternatonally. Labour and captal remuneraton rates are determned
endogenously at equilibrium. In the case of crop production, farmers
make decsons on land allocaton. Land s assumed to be mperfectly
mobile between crops, and hence the model allows for endogenous land
rent dfferentals. Each country or regon s equpped wth one country or
regonal household that dstrbutes ncome across savngs and consumpton
expendture to maxmse ts utlty.
The GTAP model ncludes two global nsttutons. All transport between
regons s carred out by the nternatonal transport sector. The tradng
costs reflect the transaction costs involved in international trade as well
as the physcal actvty of transportaton tself. Usng transport nputs from
all regions, the international transport sector minimises its costs under
Cobb-Douglas technology. The second global institution is the global bank,
whch takes the savngs from all regons and purchases nvestment goods
n all regons dependng on the expected rates of return. The global bank
guarantees that global savngs are equal to global nvestments.
