Detailed trade modelling with the CAPRI model
Joint Research Centre, Institute of Prospective Technological Studies (JRC-IPTS)
September 2014 - September 2015
Under the Framework contract for ENgAGE (Expert Network for Agro-Economic modelling) represented by Wageningen Economic Research (formerly LEI) and legally Stichting Dienst Landbouwkundig Onderzoek, Wageningen
Project team composed of
- Wageningen Economic Research (formerly LEI) (Coordination)
- EuroCARE GmbH (mostly M. Himics and P. Witzke)
Tackling the zero-trade issue related to the Armington approachused in the CAPRI market model. This concerns the inability to model emerging bilateral trade relations, that might be expected after liberalisation steps in trade policies, like reductions in prohibitive tariffs or introduction of TRQs.
A feasibility study for a stand-alone CAPRI module that aggregates tariff policies from the HS6 tariff lines into an ad valorem equivalent tariff rate at the level of commodities in the CAPRI market module.
Furthermore the project was also supposed to provide ad-hoc support and training to IPTS staff.
To deal with the zero-trade issue a modified Armington import-demand system has been developed that extends the traditional CES functional form with an additive (commitment) term. Rather than estimating the additional parameter it is also possible to calibrate the import demand system against zero observations, provided that expectations regarding emerging trade relations are available (e.g. from market experts). The approach was tested on a hypothetical trade scenario (liberalization of US-EU meat markets).
The advanced tariff aggregation module provides three welfare-consistent aggregators and a traditional outcome measure of aggregate tariff protection: Bach-Martin approach, Anderson's optimal tariff combination, the Trade Restrictiveness Index (TRI) and a MacMap-type aggregator. To illustrate the approach a significant amount of additional data on traded volumes/prices and trade policies was needed, taken from UN-COMTRADE database. The illustrative scenario covered certain critical HS6 lines of poultry meat imports into the EU.
Contributions of EuroCARE
EuroCARE was the only contributor.
Sections 5.4.9 (Modified Armington import demand system) and 5.4.13 (Welfare-consistent tariff aggregation) in the Chapter on "Scenario simulation": link