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Introducing the effects of foreign direct investment into the GTAP-GAC model

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  • Peter B. Dixon
  • Maureen T. Rimmer

Abstract

Since 2018, we have built a series of GTAP models for Global Affairs Canada (GAC). Each of these models introduces modifications to the standard GTAP model. This paper describes GTAP-GAC3 in which we add an FDI extension. Our main focus is on the role of foreignaffiliate production as a substitute for imports and thereby a method for getting behind a tariff wall. GTAP-GAC3 could also be used for investigating scenarios in which FDI is motivated by productivity effects. Relative to other CGE models that incorporate FDI, GTAP-GAC3 has several advantages, including: year-on-year dynamics; realistic labour-market responses and high levels of commodity and country disaggregation. As explained in the paper, these advantages are achieved mainly by simplifications in demand-side specifications relative to those in other FDI-extended CGE models. By comparing GTAP-GAC3 tariff simulations conducted without and with the FDI extension, we show that FDI can have significant implications for simulation results.

Suggested Citation

  • Peter B. Dixon & Maureen T. Rimmer, 2022. "Introducing the effects of foreign direct investment into the GTAP-GAC model," Centre of Policy Studies/IMPACT Centre Working Papers g-333, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-333
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    References listed on IDEAS

    as
    1. Peter B. Dixon & Maureen Rimmer & Nhi Tran, 2020. "Creating a Disaggregated CGE Model for Trade Policy Analysis: GTAP-MVH," Foreign Trade Review, , vol. 55(1), pages 42-79, February.
    2. Lakatos, Csilla & Fukui, Tani, 2014. "The Liberalization of Retail Services in India," World Development, Elsevier, vol. 59(C), pages 327-340.
    3. Erwin Corong & Thomas Hertel & Robert McDougall & Marinos Tsigas & Dominique van der Mensbrugghe, 2017. "The Standard GTAP Model, version 7," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 2(1), pages 1-119, June.
    4. Fukui, Tani & Csilla Lakatos, 2012. "A Global Database of Foreign Affiliate Sales," GTAP Research Memoranda 4009, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Foreign direct investment; computable general equilibrium modelling; GTAP model;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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