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Empirical testing of a CGE trade model with and without gravity on Chinese data

Chen, Gang 2022. Empirical testing of a CGE trade model with and without gravity on Chinese data. PhD Thesis, Cardiff University.
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Abstract

This thesis has set up two rival Computable General Equilibrium (CGE) trade models by incorporating the theories of classical model and gravity model, where the gravity model is in fact based on New Trade Theory (NTT). Afterwards, this thesis tests those two rival trade models by indirect inference method and the results show that gravity (NTT) model is rejected, whereas classical trade model passes, which suggests classical trade model is the more appropriate model to be used to evaluate China’s trade policies. Also, in order to verify the validity of my testing method, this thesis conducts an experiment to examine the power of the test by Monte Carlo experiment and the experiment shows that this test has considerable ability to reject the false model. Furthermore, this thesis examined the tariffs effects and the results shows the classical model sacrifices more welfare than gravity (NTT) model does if we rise the tariffs. This is mainly because the gravity (NTT) model benefits from the term of trade gains through the movements of real exchange rate, whereas the real exchange rate does not move under the framework of classical trade model, so there are no term of trade gains for classical trade model if the tariffs are raised. To sum up, this thesis concludes that Chinese government should use classical models to measure and formulate trade policies and the trade policy formulated should be based on free trade

Item Type: Thesis (PhD)
Date Type: Completion
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords: Bootstrap, indirect inference, New Trade Theory, classical trade model, China trade
Date of First Compliant Deposit: 26 July 2022
Last Modified: 11 Mar 2023 02:20
URI: https://orca.cardiff.ac.uk/id/eprint/151461

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