A debate on the classical and gravity trade models: Testing EU trade facts using direct inference

Qiu, Guanhua 2022. A debate on the classical and gravity trade models: Testing EU trade facts using direct inference. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

This thesis constructs two Computable General Equilibrium (CGE) world trade models, and examines the empirical evidence on whether the European Union is more governed by a Classical model of comparative advantage or a Gravity model of new trade theory . It applies time series data between 1970 and 2018 and aims to test the models using Indirect Inference Wald (IIW) on EU trade facts. It extends the Minford and Xu s (2018) UK study, treats EU as a large open economy and simulates worl d variables by using a reduced form VAR of the unknown true world model , applying a Part of Model test. Empirically , the Classical model pass es the tests comfortably whilst the Gravity modelpass es when test power and gravity effect is low, but cannot surv ive in the full test power . Based on a Monte Carlo experiment , we find that the auxiliary model creates substantial but not excessive power for the test . The policy implication of our work is that both models suggest that European Union policymakers should liberaliz e trade policy, because under both model tariff simulations indicate that protection results in general welfare loss.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	Bootstrap, Indirect Inference, Classical Model, Gravity Model, Trade Model, European Union
Date of First Compliant Deposit:	7 September 2023
Last Modified:	07 Sep 2023 08:05
URI:	https://orca.cardiff.ac.uk/id/eprint/162266

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