Trade and Employment From Myths to Facts - International Labour ...

Trade and Employment: From Myths to Facts
Table 3.5: Overall welfare gains from removal of all trade barriers in various
CGE models
Study GTAP Sectors/ Static/ Returns Competition: Welfare gains
data regions dynamic to scale perfect (PC) or ($US bn)
monopolistic
(MC)
OECD1 5 10/10 Static CRS PC 173.60
Cline2 5 22/25 Static CRS PC 227.80
Anderson et al. 3 4 4/19 Static CRS PC 263.50
Anderson et al. 4 6 25/27 Dynamic CRS PC 264.80
Francois et al. 5 5 17/16 Dynamic Ag: CRS Ag: PC 367.30
Mfg: IRS Mfg: MC
Brown et al. 6 4 18/20 Dynamic Ag: CRS Ag: PC 2154.50
Mfg: IRS Mfg: MC
Source: Piermartini and Teh (2005).
Notes: 1. OECD (2003); 2. Cline (2004); 3. Anderson et al. (2001); 4. Anderson et al. (2005);
5. Francois et al. (2003); 6. Brown et al. (2003).
the size and even direction of the results. There are fundamental differences between
economies with surplus labour and those without (cyclical fluctuations notwithstanding)
and it is this difference rather than the specific details of the labour market
that must be pinned down before a model is ready for use in policy discussions.
Table 3.5 shows a summary of model structures and results for a number of
models surveyed recently. As an example of how results from CGE models may vary
with the database, structure of the models and the exact simulations undertaken,
consider the information in table 3.5. The results of the studies in the table are presented
as the total overall welfare gains from the removal of trade barriers, in the
right-most column. From the table, the estimated gains range from a low of US$173.6
billion to a high of US$2,154.5 billion, with four of the six studies in a narrower
range from US$227.8 billion to US$367.3 billion. The size of the gains increases as
the models move from static to dynamic. Note also the assumptions about competition
are altered in some studies to allow for imperfect competition, in the form of
monopolistic competition. The effect is restricted to the manufacturing sector alone.
The table shows that structure makes a difference and this certainly irks some
observers. Ackerman and Gallagher (2002) note that “the results of these models are
typically reported as if they were hard, objective facts, providing unambiguous numerical
measures of the value of liberalization”. This could be a complaint made
only by those with the most fleeting association with economic models of any kind
and their use in modern political discourse. While it is possible to imagine that
model results are sometimes presented in this way, there is certainly no shortage of
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