Trade #

Trade in MIRAGE-e 2 consists in two different Armington-like demand trees : one for final goods, one for intermediate goods. The separation between final and intermediade goods is done using the BEC classification, and allows to diffentiate between end use :

  • The value of trade flow
  • The tariff rate (due to aggregation)
  • The NTM ad-valorem equivalent (due to aggregation)

Trade and domestic demand #


Trade costs #

Trade costs are of three different types in MIRAGE-e:

  1. Tariffs
  2. Purchasing of international transportation services
  3. Non-tariff measures

Any trade cost is differentiated by end use (final versus intermediate consumption)

International transportation services #

See The Transport Sector.

Non-tariff measures #

Data #

MIRAGE-e only uses information on the trade-restrictiveness of NTMs (no benefit is considered), using ad-valorem equivalents from:

  • [(:harvard:Font2016)] in Services sectors
  • [(:harvard:Kee2009)] in Goods.

NTMs within the EU #

It is hard to quantify what are the differences in treatment between flows within the EU and flows crossing the EU single market border. So far, we rely on different estimates:

  • In goods: We use estimates of the EU frontier effect from [(:harvard:Auss2011)]
  • In services: We use estimates from [(:harvard:Berden2009)] that evaluated the share of NTMs that were “actionnable” (i.e. likely to be reduced if there exist a political will) in the case of an EU-US trade agreement. We assume that all actionnable measures are absent between EU countries.

This reduction in trade costs between EU member states is implemented at the time of calibration.

Modelling #

Non-tariff measures (NTMs) can either be modelled as:

  • an iceberg trade cost
  • an export-tax equivalent (rent-generating)
  • an import-tax equivalent (rent-generating)
  • any split between the three alternatives

By default, in absence of specific knowledge about the best modelling assumptions, NTMs are assumed to be 1/3 iceberg, 1/3 export-tax equivalent, 1/3 import-tax equivalent.

In every region, the rents created by import-tax equivalent NTMs on imports and export-tax equivalents on exports are allocated to the representative household by a lump-sum transfer.

Implementation through “generalized” costs #

The different trade costs remain separated but are aggregated using “generalized” tariffs ($GnTariff_{i,r,s,t}^C$ and $GnTariff_{i,r,s,t}^{IC}$), export taxes ($GnTaxEXP_{i,r,s,t}^{C}$ and $GnTaxEXP_{i,r,s,t}^{IC}$) and iceberg trade costs ($GnTC_{i,r,s,t}^{C}$ and $GnTC_{i,r,s,t}^{IC}$). With the example of final goods :

  • $GnTC_{i,r,s,t}^C = 1 + tCost_{i,r,s,t} + shareNTM_{i,r,s}^{tCost}\left(taxSER_{i,r,s,t}^C + NTM_{i,r,s,t}^C\right)$
  • $GnTariff_{i,r,s,t}^C = Tariff_{i,r,s,t}^C + shareNTM_{i,r,s}^{Tariff} NTM_{i,r,s,t}^C$
  • $GnTaxEXP_{i,r,s,t}^C = taxEXP_{i,r,s,t}^C + taxMFA_{i,r,s,t}^C + shareNTM_{i,r,s}^{taxEXP} NTM_{i,r,s,t}^C$

Any trade policy scenario has therefore to be implemented directly on $Tariff_{i,r,s,t}^C$, $tCost_{i,r,s,t}$, $NTM_{i,r,s,t}^C$, $taxSER_{i,r,s,t}^C$ and $taxEXP_{i,r,s,t}^C$