GTAP-M: A GTAP Model and Data Base that Incorporates Domestic Margins

Abstract

Transportation, wholesaling, and retailing activities are a significant segment of economic activity in many economies. The magnitude of these activities can vary greatly between products, users, and regions. However, in most applied general equilibrium (AGE) analyses, these marketing activities are not tied to specific commodities. This paper develops a model framework and database that incorporates domestic marketing margins on domestic and imported goods going to final demand or used as intermediate inputs, and margins on exports, into the standard GTAP Model. The effects of incorporating domestic marketing activities into an AGE model are illustrated by comparing the results of the standard GTAP Model to the new GTAP-M Model for several different technological change scenarios. The comparison yields two main results. First, tying the domestic marketing activities to specific commodities changes the degree of price transmission from producers to users, compared to a model that does not include margin activities explicitly. The second main result is that the magnitude of the elasticity of substitution between commodities and the composite marketing activity is very important. Allowing variable margins creates a new source of demand-responsiveness for commodities which can significantly alter the results of policy simulations.