How reasonable are assumptions used in theoretical models? Computational evidence on the likelihood of trade pattern changes

Lisandro Abrego, Raymond Riezman and John Whalley

Canadian Journal of Economics, 2006, vol. 39, issue 3, 781-789

Abstract: In theoretical literature it is common to make the assumption that in a multi-country, multi-good world, the direction of trade (import and export by commodity) is predetermined and fixed for each good for each country. We consider a simple three-country, three-good, pure-exchange model with CES preferences. We compute free trade competitive equilibria, three-country non-cooperative Nash equilibria, and customs union equilibria for randomised parameterizations, and find that trade pattern changes between free trade and customs union equilibria in around 35% of cases.

JEL-codes: F10 F13 F15 (search for similar items in EconPapers)
Date: 2006
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