How reasonable are assumptions used in theoretical models? Computational evidence on the likelihood of trade pattern changes |
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Authors: | Lisandro Abrego Raymond Riezman John Whalley |
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Affiliation: | International Monetary Fund; Department of Economics, University of Iowa; Department of Economics, University of Western Ontario |
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Abstract: | Abstract . In theoretical literature it is common to make the assumption that in a multi-country, multi-good world, the direction of trade (import and export by commodity) is predetermined and fixed for each good for each country. We consider a simple three-country, three-good, pure-exchange model with CES preferences. We compute free trade competitive equilibria, three-country non-cooperative Nash equilibria, and customs union equilibria for randomised parameterizations, and find that trade pattern changes between free trade and customs union equilibria in around 35% of cases. |
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Keywords: | F10 F13 F15 |
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