Reflections on the Economic Modelling of Free Trade Agreements

Abstract

This paper discusses various aspects of economic modelling of free trade agreements (FTAs) raised directly or indirectly by high-level policymakers and the general public with an interest in trade, including explicit free trade critics. It starts with a brief description of the basic features of computable general equilibrium (CGE) models, their gradual adaptation to modern trade theory and some of the criticism they have been subject to. The paper then discusses the underlying workhorse data and points to a few critical areas which are in need of further efforts to increase the quality of model based simulations. It also describes on-going efforts and past projects that have been undertaken to improve the tools available to modelers. Some necessary practical modelling choices are discussed in terms of their impact on the modelling results followed by some thoughts on how the results of relatively complex technical undertakings such as CGE modelling exercises could be presented to a broad audience.