Incorporating international ownership of endowments into a global applied general equilibrium model

The ability of comparative static models to capture the long-run effects of trade liberalisation is often limited by their inability to take account of capital accumulation and track foreign ownership. In this paper a method for endogenising capital and tracking foreign ownership is outlined. The me...

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Bibliographic Details
Published in:Economic modelling 2002-11, Vol.19 (5), p.679-707
Main Author: Walmsley, Terrie L
Format: Article
Language:English
Subjects:
Asia Pacific Region
Capital
Economic models
Economic theory
Economics
Equilibrium models
Foreign capital
Foreign capital ownership
Foreign investment
Long-run
Ownership
Perceived risk
Risk
Studies
Trade liberalization
Trade theory
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Summary:The ability of comparative static models to capture the long-run effects of trade liberalisation is often limited by their inability to take account of capital accumulation and track foreign ownership. In this paper a method for endogenising capital and tracking foreign ownership is outlined. The mechanism adopted uses endogenous risk premium to explain how investors allocate their saving across regions. This mechanism is incorporated into the GTAP model and used to simulate the long-run effects of Asia–Pacific trade liberalisation. The results show that foreign capital ownership can significantly affect the projected long-run results of trade liberalisation.
ISSN:0264-9993
1873-6122
DOI:10.1016/S0264-9993(01)00075-X