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Trade and the External Wealth of Nations

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  • André Lemelin

Abstract

Most CGE trade models fix current account balances exogenously, in accordance with the widely accepted view that trade policy may influence trade flows, but that current accounts are constrained by symmetric capital account balances, on which trade policy has little effect. The MIRAGE-D model was developed to make explicit the international capital flows which must take place to balance the current account implications of the simulated trade flows, and to compute the cumulative consequences of such capital flows on the international investment positions (IIP) of countries. In MIRAGE-D, current account balances and their capital account counterparts are endogenous, following a three-tier portfolio management model, adapted from Decaluwé and Souissi (1994; Souissi, 1994; Souissi and Decaluwé, 1997), which represents country-agent wealth allocation behavior. The allocation of capital among countries and industries is determined by an investment supply and demand equilibrating mechanism. Investment supply is the demand for new physical capital ownership titles resulting from the wealth allocation process, while investment demand is a constant elasticity function of Tobins's q in the Jung-Thorbecke (2001) style. An illustrative simulation scenario was run with both MIRAGE-D and the standard version of MIRAGE. Apart from the IIP of countries, which the standard version does not produce, other simulation results, although not identical, show moderate differences, which are fully explained by the financial aspects, and arise from the consistency required between such financial aspects and the rest of the model.

Suggested Citation

  • André Lemelin, 2008. "Trade and the External Wealth of Nations," Cahiers de recherche 0814, CIRPEE.
    • Handle: RePEc:lvl:lacicr:0814
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    File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2008/CIRPEE08-14.pdf
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    References listed on IDEAS

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    1. Jung, Hong-Sang & Thorbecke, Erik, 2003. "The impact of public education expenditure on human capital, growth, and poverty in Tanzania and Zambia: a general equilibrium approach," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 701-725, November.
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    3. Theo Junius & Jan Oosterhaven, 2003. "The Solution of Updating or Regionalizing a Matrix with both Positive and Negative Entries," Economic Systems Research, Taylor & Francis Journals, vol. 15(1), pages 87-96, March.
    4. repec:dau:papers:123456789/6497 is not listed on IDEAS
    5. André Lemelin, 2007. "Bond Indebtedness in a Recursive Dynamic CGE Model," Cahiers de recherche 0710, CIRPEE.
    6. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
    7. Mohamed Hedi Bchir & Yvan Decreux & Jean-Louis Guérin & Sébastien Jean, 2002. "MIRAGE, a Computable General Equilibrium Model for Trade Policy Analysis," Working Papers 2002-17, CEPII research center.
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    Cited by:

    1. Georges, Patrick & Mérette, Marcel & Zhang, Qi, 2011. "Assessing the Cost of Post-9/11 Security Measures and the Impact of a North American Security Perimeter - A Computable General Equilibrium Analysis," Conference papers 332126, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Deb, Surajit, 2010. "Can Trade Liberalization Promote Growth in Agriculture: Evidence from China and India," Conference papers 332011, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Andre Lemelin, 2009. "A Gras Variant Solving For Minimum Information Loss," Economic Systems Research, Taylor & Francis Journals, vol. 21(4), pages 399-408.
    4. Lemelin, André & Robichaud, Véronique & Decaluwé, Bernard, 2013. "Endogenous current account balances in a world CGE model with international financial assets," Economic Modelling, Elsevier, vol. 32(C), pages 146-160.

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    More about this item

    Keywords

    CGE models; International Investment Position (IIP); Financial assets; International trade;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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