The Contribution of Productivity Linkages to the General Equilibrium Analysis of Free Trade Agreements

Ken Itakura, Thomas Hertel and Jeffrey Reimer

GTAP Working Papers from Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University

Abstract: Applied general equilibrium (AGE) analysis is often found to under-predict the increases in trade and economic growth that result from trade liberalization. One potential reason is that conventional AGE models ignore the strong correlations that exist between firm productivity, on the one hand, and exporting, importing, and investment, on the other. To examine this possibility, this study incorporates econometric evidence of these linkages into the dynamic Global Trade Analysis Project AGE model, and then uses this model to analyze a recently proposed East Asian free trade agreement. While conventional AGE modeling effects are found to predominate and be reinforced by the productivity effects, in some cases the latter actually reverse the changes predicted by the conventional effects.

Date: 2003
Note: GTAP Working Paper No. 23
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Persistent link: https://EconPapers.repec.org/RePEc:gta:workpp:1193

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