Trade and the External Wealth of Nations

André Lemelin

Cahiers de recherche from CIRPEE

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.

Keywords: CGE models; International Investment Position (IIP); Financial assets; International trade (search for similar items in EconPapers)
JEL-codes: C68 D58 F17 F37 G11 G15 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cmp and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2008/CIRPEE08-14.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0814

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().