INTRODUCTION

This chapter discusses recent applications of general equilibrium computational methods in the international trade area which are backwards (ex post) rather than forwards (ex ante) focused. The example chosen is the trade and wages debate, where the issue is disentangling the relative importance of multiple influences on wage inequality change (trade surges from low-wage countries and skill-biased technical change). The relevant literature includes Abrego and Whalley (2000, 2001).

In the past, most applied general equilibrium modelling (AGM) of international trade has been forward focussed, attempting to provide some basis of assessment as to what might happen if particular measures are adopted. This includes assessing the effects of NAFTA in advance of its enactment (Francois and Shiells, 1994) and ex ante assessment of the impacts of the Uruguay Round as agreed in the World Trade Organisation (WTO) (Martin and Winters, 1996; Whalley, 2000).

In such exercises, calibration usually takes place around benchmark equilibrium data set for a reference year; counterfactual computations then shed light on what this reference year equilibrium might have looked like if a policy or other change, not yet enacted, had been in place.

In ex post analysis, it is typically the case that calibration to two or more years is needed. The issue is, given a model consistent with observations in both years X and Y, how its equilibrium might look like were only one (or a subset) of the changes actually occurring between the years actually to occur.