The Structure of the FTAP Model

Research memorandum

The research memorandum, The Structure of the FTAP Model, by Hanslow, K., Phamduc, T. and Verikios, G., was released originally in December 1999, in conjunction with the model software. This version of FTAP was version 1. The current version of FTAP, released on 8 January 2001 is version 2. The documentation up to appendix I describes FTAP version 1. Appendix J describes changes made to FTAP in subsequent versions. Changes made to the version 1 documentation affect chapters 3 and 4.

The FTAP model is a comparative static, computable general equilibrium model of the world economy that includes a treatment of foreign direct investment on a bilateral basis. The FTAP model was developed in stages from the GTAP model, with the addition of the structure necessary to support the analysis of services liberalisation. A major component of this liberalisation is the removal of barriers to FDI in the tertiary sector.

This research memorandum documents the equations of the FTAP model and is intended to provide self-contained documentation for the FTAP equation system.

The material contained herein constitutes Commonwealth copyright and is intended for your general use and information. You may download, store in cache, display, print and copy the information in unaltered form only. You may not re-transmit, distribute or commercialise the material without the Commonwealth's permission.

Researchers should make reference to the following source in any published material that uses the FTAP model or database, or modifications of either: Hanslow, K., Phamduc, T. and Verikios, G. 1999, The Structure of the FTAP Model, Research Memorandum MC-58, Productivity Commission, Canberra. Please do not implicate the Productivity Commission in any conclusions you may draw from the use of the model. Also see:

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CONTENTS

Preliminaries
Cover, Contents

1   Introduction

2   Overview of the FTAP Model
2.1   The structure of GTAP
2.2   The structure of FTAP
2.3   Representing barriers to services trade in FTAP

3   Incorporating International Capital Mobility into GTAP
3.1   GTAP background
3.2   Modifications to the GTAP theoretical structure
3.3   Extension of the welfare decomposition

4   Incorporating Imperfect Transformation in Asset Supply
4.1   Asset supply function - structure and parameterization
4.2   Quantity of assets supplied
4.3   Rates of return
4.4   Rental prices of capital
4.5   Asset prices
4.6   Market clearing for capital
4.7   FDI income accounting
4.8   Contributions of FDI income flows to welfare

5   Supply Side of FDI Differentiated Product
5.1   CRUSOE input demand equations for all domestic and foreign-owned industries
5.2   Integration of CRUSOE and GTAP code - one-to-one correspondence equations
5.3   Integration of CRUSOE and GTAP code - redefinition of GTAP variables as aggregates of CRUSOE variables
5.4   Integration of CRUSOE and GTAP code - convenience variables

6   Demand Side of FDI Differentiated Products
6.1   Demands for FDI differentiated products
6.2   International freight
6.3   Price definition and transmission equations
6.4   Market clearing and accounting equations
6.5   Links to GTAP variables
6.6   Checking equations
6.7   Firm-level product differentiation

7   An Amendment to Allocative Efficiency Measures
7.1   Adapting the GTAP welfare decomposition
7.2   Respecifying the GTAP welfare decomposition

8   Rents from Barriers to Services Trade - Accounting and Welfare Decomposition
8.1   Income from output impediments
8.2   Welfare effects of income from output impediments
8.3   Income from capital impediments
8.4   Welfare effects of income from capital impediments
8.5   Income from export impediments
8.6   National income equations

9   Miscellaneous Equations
9.1   Miscellaneous equations for GTAPICM
9.2   Adaptation of miscellaneous GTAPICM equations for FTAP
9.3   New miscellaneous equations for FTAP

10   Further Research - An Extended Definition of Welfare

APPENDICES

A   The Core Equations GTAP

B   Decomposing Foreign Income Flows

C   Petri Asset Values - Defining Shares for the Asset Supply Equations

D   Miscellaneous Changes to Welfare Decomposition

E   Data Requirements for GTAPICM
E.1   Regional aggregation
E.2   Taxes on labour and property income, by region
E.3   Transfers from government to private households, by region
E.4   Abnormal earnings of capital, by region and industry
E.5   Net interest receipts of government, by region
E.6   Net interest income of households, by region
E.7   Rate of growth in real household income and real government receipts, by region (per year)
E.8   Capital depreciation and net saving, by region
E.9   Capital stock, by region
E.10   Steady-state rate of growth in real capital stock, by region
E.11   World real bond rate
E.12   Coefficient for FORMULA (INITIAL) statements
E.13   Length of simulation period
E.14   Coefficient of adjustment in returns to capital
E.15   Elasticity of the expected rate of return on capital with respect to the size of the capital stock, by region
E.16   Pre-tax rate of return on equity, by region

F   Asset Supply Transformation Elastisties - Some Examples

Examples (in spreadsheet format)

G   Computational Issues
G.1   Condensation
G.2   GEMPACK settings
G.3   Simulation times

H   Closing GTAPICM and FTAP
H.1   GTAPICM
H.2   FTAP

I   The FTAP Tablo code

J   Changes in FTAP since version 1
J.1   FTAP version 2

References