Author: Terrie Walmsley
In static applied general equilibrium models, the exogenous/endogenous split between variables (or closure) is used to infer the time frame over
which the effects of a shock are simulated. This paper introduces a long-run closure for the GTAP model (Hertel and Tsigas, 1997) and uses this
closure to simulate and compare the short-run and long-run effects of Asia-Pacific trade liberalisation. The approach explored here incorporates
some relatively minor changes to existing GTAP theory in order to define a steady state in which growth rates of all real variables are uniform.
Such uniformity must apply in the initial database (as well as in the post-shock solution). So to implement the new long run in GTAP a new initial
database must first be created. Details concerning the creation of the new database are given, and results under the new approach are compared
with those obtained under the old. The emphasis of this paper is on the development of a long-run closure in which the percentage change form
equations of the model and the relationships between the levels variables in the GTAP database are consistent. Further research is required into
these types of long-run closures to incorporate changes in ownership of capital to ensure that changes in welfare are adequately modelled. In the
results reported here, GDP is not a useful guide to national welfare.
The long-run closures introduced here are also compared with another comparative static long-run closure developed for GTAP by Francois, MacDonald
and Nordstrom (1996).
JEL Classification: D58, F15.
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