"The Impact of Changes in Trade Policies on the Electric Vehicle (EV) Sector– A CGE Analysis" (2024), with David Coffin, Patrick Crotty and Jeffrey Walling
Abstract: In this paper, we develop a CGE model which considers both the upstream and downstream of an EV supply chain, analyzing the impact of global tariffs on Chinese exports of EVs and hybrids and EV parts on trade, output, and the overall economy. Simulation results indicate significant differences in the effects of tariffs on upstream EV parts compared to downstream EVs and hybrids. A global tariff increase on Chinese EVs and hybrids leads to a decline in China’s exports of such products, while major EV producers increase their exports of EVs and hybrids. The magnitude of the trade diversion effect varies and depends, in part, on Chinese EV exports’ share of domestic EV consumption in each region. Moreover, global tariffs on downstream EVs and hybrids affect upstream production and trade: major EV producers expand their EV and hybrid production, subsequently increasing their demand for EV parts and internal combustion engine (ICE) parts from China. This leads to a rise in Chinese exports of EV parts and ICE parts to these regions. By contrast, global tariffs on Chinese exports of EV parts depict a different picture: global tariffs against Chinese exports of EV parts cause a significant decline in Chinese exports of EV parts to other regions, while other regions increase their exports of EV parts. This, in turn, affects downstream EV prices, leading to a change in global trade and production patterns of EVs. Certain major EV producers in the industry increase their production and exports of EVs and hybrids, while others experience a decline. The macroeconomic consequences are also different in the two scenarios: Notably, China experiences a greater decline in welfare when global tariffs increase against Chinese exports of EV parts compared to EVs and hybrids.
"Climate Mitigation Policies, Comparative Advantage in Trade and Restructuring of the Global Value Chains (GVCs)" (2024), with Maksym Chepeliev and Maryla Maliszewska
Abstract: This paper uses a combination of the TIMES Integrated Assessment model (TIAM-WORLD) and global computable general equilibrium (CGE) model ENVISAGE to analyze the impact of future climate mitigation policies. Simulation results indicate that on the macro level, the cost of putting the global economy on the low carbon transition pathways is manageable — stylized modeling suggests that even under the most ambitious climate mitigation scenario, a global GDP declines by only 1.4 percent in 2050 relative to the baseline. Meanwhile, with increasing climate mitigation efforts, low carbon intensive sectors, such as electronics and transportation equipment, gain their share in global exports. The extent of such an expansion across countries is largely driven by the carbon revenue recycling approach, as well as carbon intensity of the corresponding production processes across countries. Finally, in terms of GVC participation metrics, our stylized modeling results indicate that while fossil fuels and energy intensive sectors experience a reduction in the GVC participation rates following an implementation of climate policies, service sectors and light manufacturing activities see a moderate increase in their involvement to the global values chains. These include such highly GVC-integrated commodities like computers and electronics and other light manufacturing goods. Thus, our analysis suggests that the climate mitigation policies stimulate higher integration into the GVCs of low carbon intensive commodities, while economies that specialize in such goods have better opportunities in navigating the low emission development transition.
"When Multinational Companies Come – a CGE Analysis on the Impact of Growing Inward FDI on the Indian Economy" (2022), with Marinos Tsigas
Abstract: India is rapidly emerging as an attractive destination for foreign direct investments (FDI), and FDI inflows to India increased significantly from 2014 to 2020. We use a novel computable general equilibrium (CGE) model to simulate the growth of inward FDI in different sectors in India and analyze how increasing inward FDI affects the country’s overall economy, trade patterns and production. Most CGE models do not model capital in a way that accounts for the international mobility of capital. We bridge this gap by developing a CGE model which incorporates internationally mobile capital and use this model to analyze the impact of the recent growth in inward FDI on the Indian economy. Our simulation results show that a larger sized easing of FDI restrictions increases the overall amount of capital in the Indian economy, as well as the country’s nominal and real GDP. It also drives up the overall labor wages and household income. At the sectoral level, our simulation results indicate that due to foreign affiliates’ expanding their production in India and their reallocation of capital globally, Indian imports declines in some sectors. The sectors where Indian imports decline the most are different manufacturing sectors, while Indian imports in most services sectors increase slightly. As the Indian manufacturing sector is more dependent upon international trade compared to its services sector, the effect of inter-modal switching between trade and FDI dominates the changes in imports in Indian manufacturing sectors. By contrast, the “income effect” dominates the changes in imports in Indian services sectors.
"Incorporating Industry-Specific Wages and Unemployment into the GTAP Model: U.S.-EU Trade Liberalization Scenarios" (2022), with Katherine Antonio and Arona Butcher
Abstract: This paper applies a new GTAP Labor model (GTAP-LAB) developed by Peterson (2019) to analyze U.S.-EU trade liberalization scenarios. When job search frictions and unemployment are incorporated into the GTAP model, the model estimates changes in wages at the sectoral level. Simulated effects of a full bilateral tariff liberalization between the United States and the EU show wage gains for U.S. workers in different industries, with the highest gains for U.S. food and agricultural workers, where the extent of the EU tariff liberalization is the biggest. The full U.S.-EU bilateral tariff removal scenario also leads to U.S. worker reallocation across industries, with the largest increase in employment in the services sectors, mainly due to an increase in overall household income, and a decline in U.S. employment in extraction, metals and other manufacturing industries.
"Alternative Macroeconomic Closures in Baseline Projections – Implications for Macro Outcomes and Sectoral Structure" (2021), with Mary Burfisher
Abstract: This paper compares baseline projections for Italy over 2015-2044 in the recursive dynamic GTAP-RD model framework under three alternative macroeconomic closures: the trade balance adjusts as global investment flows to regions with the highest expected rates of return to capital, the trade balance adjusts as regions receive a fixed share of the global supply of savings, and the regional savings rate adjusts to maintain a fixed balance of trade as global investment flows shift. The macro behaviors that bring regional savings and investment into equilibrium in each closure are fundamentally different, and result in pronounced differences in macroeconomic baseline projection paths — either a rising capital account deficit, a falling capital account deficit, or a stable capital account balance with a change in the savings rate and a shift in the composition of aggregate demand. These outcomes have implications for sectoral structure, as a capital account deficit/trade surplus favors production of tradables, a capital account surplus/trade deficit favors the production of nontradables, and a fixed balance of trade favors more balanced sectoral growth. One of the main triggers for the differences in baseline outcomes across closures is that Italy is a slow-growing economy relative to the rest of the world.
"Comparing Trade Balance Closures in the GTAP-Recursive Dynamic (GTAP-RD) Model" (2021), with Mary Burfisher
Abstract: This paper explores the importance of macro closure rules governing the balance of trade and foreign savings in the results of model simulations using a recursive dynamic, multi-country CGE model. It first presents a stylized shock in which a single country—Vietnam—experiences a total output productivity shock, and compares results when global capital is assumed to move across regions until expected rates of return are equalized, versus a closure that fixes the region’s real trade balance. Results between the two closures differ in magnitudes and in many cases differ in sign as both macro and micro adjustments occur to accommodate the alternative closure rules. After illustrating these mechanisms, the paper provides a simulation of a tariff reduction under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), comparing selected results under two closure rules. The main findings of the paper is that a closure that allows capital inflows to equalize expected rates of return allows a capital-deepening over time that leads to stronger economic growth, increased imports but lower exports, both terms of trade and welfare gains, and a change in sectoral structure that favors capital-intensive and income-sensitive industries. A closure that imposes a fixed trade balance has negligible capital-deepening and so the same shock has weaker growth and income effects, increases in both imports and exports, a terms of trade loss that reduces welfare gains, and a change in sectoral structure that favors exportable industries.
