Calibrating a CGE model with NTBs that Incorporates Standard Models of Modern Trade Theory

We propose a way to incorporate NTBs for the four workhorse models of the modern trade literature in computable general equilibrium models (CGEs). CGE models feature intermediate linkages and thus allow us to study global value chains (GVCs). We show that the Ethier-Krugman monopolistic competition model, the Melitz firm heterogeneity model and the Eaton and Kortum model can be defined as an Armington model with generalized marginal costs, generalized trade costs and a demand externality. As already known in the literature in both the Ethier-Krugman model and the Melitz model generalized marginal costs are a function of the amount of factor input bundles. In the Melitz model generalized marginal costs are also a function of the price of the factor input bundles. Lower factor prices raise the number of firms that can enter the market profitably (extensive margin), reducing generalized marginal costs of a representative firm. For the same reason the Melitz model features a demand externality: in a larger market more firms can enter. We implement the different models in a CGE setting with multiple sectors, intermediate linkages, non-homothetic preferences and detailed data on trade costs. We find the largest welfare effects from trade cost reductions in the Melitz model. We also employ the Melitz model to mimic changes in Non tariff Barriers (NTBs) with a fixed cost-character by analysing the effect of changes in fixed trade costs. While we work here with a model calibrated to the GTAP database, the methods developed can also be applied to CGE models based on the WIOD database.

Non-tariff barriers, integration and the transatlantic economy

We examine the potential impact of TTIP through trade-cost reductions, applying a mix of econometric and computational methods to develop estimates of the benefits (and costs) for the EU, United States, and third countries. Econometric results point to an approximate 80% growth in bilateral trade with an ambitious trade agreement. However, at the same time, computable general equilibrium (CGE) estimates highlight distributional impacts across countries and factors not evident from econometrics alone. Translated through our CGE framework, while bilateral trade increases roughly 80%, there is a fall of about 2.5% in trade with the rest of the world in our central case. The estimated gains in annual consumption range between 1% and 2.25% for the United States and EU, respectively. A purely discriminatory agreement would harm most countries outside the agreement, while the direction of third-country effects hinges critically on whether NTB reductions end up being discriminatory or not. Within the United States and EU, while labour gains across skill categories, the impact on farmers is mixed.

A new, fast and flexible radiative transfer method for Venus general circulation models

We present a new radiation scheme for the Oxford Planetary Unified Model System for Venus, suitable for the solar and thermal bands. This new and fast radiative parameterization uses a different approach in the two main radiative wavelength bands: solar radiation (0.1-5.5 mu m) and thermal radiation (1.7-260 mu m). The solar radiation calculation is based on the delta-Eddington approximation (two-stream-type) with an adding layer method. For the thermal radiation case, a code based on an absorptivity/emissivity formulation is used. The new radiative transfer formulation implemented is intended to be computationally light, to allow its incorporation in 3D global circulation models, but still allowing for the calculation of the effect of atmospheric conditions on radiative fluxes. This will allow us to investigate the dynamical-radiative-microphysical feedbacks. The model flexibility can be also used to explore the uncertainties in the Venus atmosphere such as the optical properties in the deep atmosphere or cloud amount. The results of radiative cooling and heating rates and the global-mean radiative-convective equilibrium temperature profiles for different atmospheric conditions are presented and discussed. This new scheme works in an atmospheric column and can be easily implemented in 3D Venus global circulation models. (C) 2014 Elsevier Ltd. All rights reserved.