Hertel, et. al.: Distributional Effects of WTO Agricultural Reforms in Righ and Poor Countries

Hertel, Thomas W., Roman Keeney, Maros Ivanic, and L. Alan Winters. 2007. “Distributional effects of WTO agricultural reforms in rich and poor countries..” Economic Policy 22:289-336.

CGE contextualized, defined:
“General equilibrium, which dates back to Leon Walras (1834–1910), is one of
the crowning intellectual achievements of economics. It recognizes that there
are many markets and that they interact in complex ways so that, loosely
speaking, everything depends on everything else. Demand for any one good
depends on the prices of all other goods and on income. Income, in turn, depends
on wages, profits and rents, which depend on technology, factor supplies and
production, the last of which, in its turn, depends on sales (i.e., demand). Prices
depend on wages and profits and vice versa” (294).

CGE limitations:
“The models have their limitations, however. First, CGE simulations
are not unconditional predictions but rather ‘thought experiments’ about what
the world would be like if the policy change had been operative in the assumed
circumstances and year. The real world will doubtless have changed by the
time we get there. Second, while CGE models are quantitative, they are not
empirical in the sense of econometric modelling: they are basically theoretical,
with limited possibilities for rigorous testing against experience. Third, conclusions
about trade policy are very sensitive to the levels assumed for trade restrictions
in the base data. One can readily do sensitivity analysis on the parameter
values assumed for economic behaviour (as we have done in this paper), but
less so on the data because altering one element of the base data requires
compensating changes elsewhere in order to keep the national accounts and
social accounting matrix in balance. Of course, many of these criticisms apply
to other types of economic modelling and, therefore, while imperfect, CGE
models remain the preferred tool for analysis of global trade policy issues” (295)