This site offers industry-specific, partial equilibrium (PE) modeling tools that can be used to simulate the economic impact of changes in trade policies. The models are based on economic theory and can be applied to specific industry data and policy scenarios.
PE models are sets of equations that identify the economic factors that influence the prices and sales of imports and competing domestic products in the industry. They estimate the economic impact of changes in tariff rates, including changes in equilibrium prices, domestic shipments, or imports from their initial values. PE models are often used for prospective analysis of policy changes not yet in force, though they can also be used to analyze the impact of policy changes in the past.
There are many software packages that can be used to run PE model simulations. Since the equations of the models are typically non-linear, they are often run in specialized mathematical software like Mathematica or GAMS. However, this Portal offers downloadable Euler method PE models that run as simple Excel spreadsheets (with a lot of hidden columns) as well as models in Mathematica notebook files. The advantage of the spreadsheet format is that it is easy to run, without knowledge of the underlying equations of the model or specialized mathematical software.
PE simulation models provide preliminary quantification of economic effects. It is a good idea to build on this analysis by relaxing some of the restrictions of the model, improving data inputs, and elaborating the structural equations of the model if possible.
TYPES OF MODELS THAT ARE CURRENTLY AVAILABLE IN A SPREADSHEET FORMAT
There many different types of PE models. There are currently 14 available in method spreadsheet format. We group the models by the type of policy considered and the models’ assumptions about market structure.
Group 1: Trade Policy Models with Perfect Competition
- Non-Nested CES Tariff Model [XLSX] This is probably the most common model in industry-specific trade policy analysis. There are differentiated products from three distinct sources of supply. The model can simulate the effects of tariff changes on prices and quantities of imports and domestic shipments in the single national market.
- Nested CES Tariff Model [XLSX] This is a variant of the model that allows for a higher elasticity of substitution between the two sources or types of imports. This model is an alternative for simulating the effects of tariff changes on prices and quantities of imports and domestic shipments in the market.
- Non-Nested CES Tariff Model without a Domestic Industry [XLSX] This variant includes two foreign sources of supply to the market, subject imports and non-subject imports, but there is no domestic product. This variant can simulate the effects of tariff changes on prices and quantities of the two types of imports in the single market.
- Non-Nested CES Tariff Model with Two Countries [XLSX] This variant includes two source countries and two destination markets, domestic and foreign. This model can simulate the effects of tariff changes on prices and volumes of imports and domestic production in both of the markets.
- Tariff Model with Intermediate Imports [XLSX] This variant includes two sources of final goods supply and two sources of intermediate goods supply in a single market. This model can simulate the effects of tariff changes for both intermediate goods and final goods on prices, quantities and volumes of production in the market.
- Model with a Binding Import Quota [XLSX] This variant includes three sources of supply to a single domestic market. The model can simulate the effects of a binding quota on prices, quantities, and volumes of production in the market.
Group 2: Tariff Models with Imperfect Competition
- Bertrand Differentiated Products Tariff Model [XLSX] This variant includes three sources of supply to a single, highly concentrated domestic market. Firms maximize profits in a Bertrand-style competition. The model can simulate the effects of a tariff change on prices, quantities, and profits in the market.
- Cournot Tariff Model with 2 Firms [XLSX] This variant includes two firms serving a highly concentrated domestic market. Firms maximize profits in a Cournot-style competition. The model can simulate the effects of a tariff change on prices, quantities, and profits in the market.
- Cournot Tariff Model with 3 Firms [XLSX] This variant includes three firms serving a highly concentrated domestic market. Firms maximize profits in a Cournot-style competition. The model can simulate the effects of a tariff change on prices, quantities, and profits in the market.
- Monopoly Tariff Model [XLSX] This variant includes a dominant firm with market power and a foreign perfectly competitive supply of fringe firms in a single domestic market. The dominant firm maximizes profits in a Bertrand-style competition and the fringe firms are price takers. The model can simulate the effects of a tariff change on prices, quantities, and dominant firm profits in the market.
Group 3: Models with Firm Heterogeneity, New Entry, and Intellectual Property
- Model with Fixed Costs, Tariffs, and Firm Heterogeneity [XLSX] This variant includes monopolistically competitive firms with heterogeneous productivity and scale economies. The model can simulate the effects of changes in tariffs, fixed costs of production, and fixed costs of exporting on the volume of international trade and domestic shipments.
- Model with Entry of a New Source of Imports [XLSX] This variant of the perfect competition tariff model addresses the case when a tariff reduction leads to the entry of a new source of imports into the market. It can simulate the effects of the new entray on the prices and quantities of imports and domestic shipments in the market.
- Model of the Value of a Monopoly Created by Protecting IPR [XLSX] This variant simulates the profits created by monopolization of a previously competitive market. It can be used to simulate the economic effects on prices and profits of protecting intellectual property rights.
- Model of Trade and Innovation [XLSX] This variant is a static, partial equilibrium version of models of trade and incentives to innovate. It can be used to simulate the increase in innovation that could result from protecting intellectual property rights in a additional export markets.
TYPES OF MODELS THAT ARE CURRENTLY AVAILABLE AS MATHEMATICA NOTEBOOK FILES
There are currently three models available as Mathematica notebook files. Models in this format require specialized mathematical software, but they are easier to create, modify, and expand.
- Zero Subject Imports [NB] [PDF] [TXT] This variant includes three initial sources of supply, with no initial volumes of imports from suppliers subject to tariff changes. The model uses a reference group to calibrate the marginal costs of subject imports entering the market. The model can simulate the effects of a tariff change on prices and quantities for imports and domestic producers in cases where there are no initial volumes of imports from suppliers subject to the tariff changes.
- Non-Nested CES Tariff Model with Three Countries or Regions [NB] [PDF] [TXT] This variant includes three source regions and three destination regions. They can be three countries, or two countries with one of the countries split into two sub-national regions. This model simulates the effects on prices and volumes of imports and domestic production in all of the regions.
- FDI, Trade, and Pricing Model [NB] [PDF] [TXT] This variant is a Bertrand differentiated products model with several alternative forms of foreign direct investment, including foreign acquisitions with and without technology transfer and greenfield investment. The model simulates changes in prices, trades, and industry employment associated with the different types of foreign direct investment.
PE MODELING WORKING PAPERS
USITC staff have completed several research papers that develop the methodology for industry-specific simulation modeling of trade and in some cases apply them to specific industries. Recent examples include:
Additional earlier staff research is available at www.usitc.gov/research_and_analysis/staff_products.htm.
The models posted on this site are the result of ongoing professional research of USITC staff and are solely meant to represent the opinions and professional research of individual staff economists. The models are not meant to represent in any way the view of the U.S. International Trade Commission or any of its individual Commissioners.
This Portal contains generic versions of the models with fictional, illustrative data. The models do not include the data or other customizations included in Commission reports. Predictions based on these models will depend on the specific data and parameter values that is supplied by the user, and so they are solely the responsibility of the user.
If you find these modeling tools useful or have comments on the models currently posted or suggestions for models to add to the site, please let us know by emailing firstname.lastname@example.org.
The following is a suggested citation for the models and documentation in the PE Modeling Portal:
Riker, David, and Samantha Schreiber. Trade Policy PE Modeling Portal. U.S. International Trade Commission. https://www.usitc.gov/data/pe_modeling/index.htm (accessed May 20, 2019).