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)
TBA

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

Non-tariff measures

Data

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

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:

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 ($GnTariff^C_{i,r,s,t}$ and $GnTariff^{IC}_{i,r,s,t}$), export taxes ($GnTaxEXP^{C}_{i,r,s,t}$ and $GnTaxEXP^{IC}_{i,r,s,t}$) and iceberg trade costs ($GnTC^{C}_{i,r,s,t}$ and $GnTC^{IC}_{i,r,s,t}$). With the example of final goods :

  • $ GnTC^C_{i,r,s,t} = 1 + tCost_{i,r,s,t} + shareNTM^{tCost}_{i,r,s}\left(tax{SER}^C_{i,r,s,t} + NTM^C_{i,r,s,t}\right) $
  • $ GnTariff^C_{i,r,s,t} = Tariff^C_{i,r,s,t} + shareNTM^{Tariff}_{i,r,s} NTM^C_{i,r,s,t} $
  • $ GnTaxEXP^C_{i,r,s,t} = tax{EXP}^C_{i,r,s,t} + tax{MFA}^C_{i,r,s,t} + shareNTM^{taxEXP}_{i,r,s} NTM^C_{i,r,s,t}$

Any trade policy scenario has therefore to be implemented directly on $Tariff^C_{i,r,s,t}$, $tCost_{i,r,s,t}$, $NTM^C_{i,r,s,t}$, $tax{SER}^C_{i,r,s,t}$ and $tax{EXP}^C_{i,r,s,t}$

1. ^ Lionel Fontagné, Cristina Mitaritonna, José E. Signoret, 2016. Estimated Tariff Equivalents of Services NTMs. CEPII Working Papers, 2016-20.
2. ^ Hiau Looi Kee, Alessandro Nicita, Marcelo Olarreaga, 2009. Estimating Trade Restrictiveness Indices*. The Economic Journal, 119, Blackwell Publishing Ltd, pp.172–199, ISSN 1468-0297.
3. ^ Vincent Aussilloux, Charlotte Emlinger, Lionel Fontagné, Houssein Guimbard, 2011. The economic consequences for the UK and the EU of completing the Single Market.
4. ^ Koen G Berden, Joseph Francois, Saara Tamminen, Martin Thelle, Paul Wymenga, 2009. Non-Tari Measures in EU-US Trade and Investment An Economic Analysis.