Introduction and overview

This chapter documents the parameters that specify marginal behavior in the Global Trade Analysis Project (GTAP) model. These behavioral parameters, along with the theory of the model as described in Chapter 2 and the composition of the benchmark data (i.e., the value flows described in Chapter 3), will determine simulation results. No individual component can be said to be more important than the others. For some simulations, it is the accounting identities that determine results, whereas the behavioral parameters may play a relatively small role. For other simulations, the specification of certain elasticities is of paramount importance. Documentation of these elasticities is the purpose of this chapter.

In section II, we discuss the behavioral parameters at the disaggregate 37-commodity, 24-region level. Most behavioral parameters in GTAP are based on constant elasticity specifications [e.g., the constant elasticity of substitution (CES) function], which simplify model calibration. However, consumer behavior in GTAP is based on the constant difference elasticity (CDE) function, of which the CES is a special case. Because this has not been widely used in applied general equilibrium (AGE) modeling to date, we provide a brief overview and motivation for the CDE in section III of this chapter. We then discuss the calibration and performance of the CDE demand system.

Disaggregate behavioral parameters

There are four types of behavioral parameters in GTAP: elasticities of substitution (in both consumption and production), transformation elasticities that determine the degree of mobility of primary factors across sectors, the flexibilities of regional investment allocation, and consumer demand elasticities.