MODELING COUNTRY RISK AND CAPITAL FLOWS IN GTAP

Gerard Malcolm

No 28707, Technical Papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: This paper describes how the standard GTAP framework may be used to assess the short-run impacts of changes in international capital market conditions. It describes a technique that can be used to examine the short-run effects of changes in country risk. In the standard GTAP model investment demand is spread across regions according to a simple rate-of-return-equalizing rule. By making the risk premium in this rule explicit, we are able to examine the effects of changes in these risk premium. This work was originally developed as part of the course material for the South African GTAP short course in January 1998. South Africa has experienced a series of dramatic changes during the last decade, and these have had very significant effects on the capital account. Thus, this paper also contains an application of the technique developed to the recent South African experience, and an assessment of how well the simulated changes in this application match actual outcomes.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 19
Date: 1998
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugttp:28707

DOI: 10.22004/ag.econ.28707

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