TSCAPE: A Time Series of Consistent Accounts for Policy

EvaluationPart II: Testing

Edward J. BalistreriAlan K. FoxU.S. International Trade

CommissionWashington, DC

Introduction

Construct consistent social accounts for United States Cover 1978 to 2001 Aggregate to two-digit SIC level

Basic one-country model for analysis Testing the Armington

Data Sources for TSCAPE:U.S. Department of Commerce Bureau of Economic Analysis (BEA)

Value added by factor and sector (approx. 2-digit) Benchmark IO tables (1982, 1987, 1992, 1997) National Income and Product Accounts (NIPA)

Trade Policy Information System (TPIS) Trade by TSUS, Schedule B (1978-1988) Trade by HTS 10-digit (1989-2001)

Scope of TSCAPE

Defined by quantity index for GDP by industry (GDPI) Available at 2-digit level From 1977 to present

Defined by TPIS Highly disaggregated Available from 1978 to present

Discontinuity in Trade Data

1978 to 1988: TSUS, Sch. B to SIC 4 digit Based on DOC concordance Only half of lines originally mapped to SIC DOC concordance substantially revised and

extended by authors 1989 to 2001: HTS10 to SIC 4 digit

DOC concordance used unchanged No handshake between TSUS and HTS10 Discontinuity between 1988 and 1989

TSCAPE Use Matrix Architecture

C+I+G Use

Value Added

Gross Make

Gross Output

Mer

chan

dise

Tr

ade

Final Demand

Fact

ors

Goo

ds

Industry

Srv

.

Trad

e

TSCAPE Make Matrix Architecture

Make Gross Output

Gross Make

Indu

strie

s Goods

Establish Consistency

Value added matrix: no changes Merchandise trade: no changes

Minimize loss function subject to Zero profit condition No excess demand Income balance

Resulting Baseline

Labor’s value share of GDP averages 58% Imports’ share of GDP grew from 7% to 16% Exports’ share of GDP grew from 6% to 12% Protection fell dramatically in some sectors

Electronic Equipment (down by 86%) Industrial Machinery (down by 88%)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Billi

ons

of 1

996

dolla

rs

Labor Income

Other Value Added

Gross Domestic ProductBillions of 1996 Dollars

Aggregate Imports and ExportsBillions of 1996 Dollars

0

200

400

600

800

1000

1200

1400

1600

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Bill

ions

of 1

996

dolla

rs

export import

Relative Growth of Trade and IncomeIndex, 1978 = 1.0

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Inde

x (1

978

equa

ls o

ne)

GDP Imports Exports

The TSCAPE Model

Single country static general equilibrium Each year independent (no intertemporal

linkage) Final demand

Household with Cobb-Douglas utility Government Spending and Investment fixed

Production a nested CES function Factor supplies (K,L) fixed

Trade balance fixed

Production

j

Make coefficients from the socialaccounts determine commodityoutputs Dji (i = 1,...,n) in fixedproportion to sectoral output Xj.

0

0

Xj

Commodity Outputs(Dj1, ... , Djn)

Intermediate Inputs(A1j, ... , Anj)

VAj

Lj Kj

Sectoral output Xj uses fixedproportions of value added VAjand intermediate composite inputsAij (i=1,...,n).

Value added VAj is a CESfunction of labor Lj andcapital Kj, inputs to sector j.

Product and Commodity Structure

Ai

DDi IM1 ... IMn

i

Aggregation of domesticand imported goods

Di

i

Disaggregation of domesticcommodity output

DDi EXi,1 ... EXi,n

Experiment Structure

Set distortions to level in 1979 (Tokyo Round phase-in begins in 1980)

Roll back all liberalization 1980-2001 Set tau (elasticity of transformation) high so

that Armington “carries the freight” Vary sigma, Armington elasticity Goal: Match import growth to GDP growth

Relative Growth of Trade and IncomeIndex, 1978 = 1.0

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Inde

x (1

978

equa

ls o

ne)

GDP Imports Exports

Measure of Fit:Squared Error of GDP and ImportsSigma

(Armington)Tau

(CET)Measure

of Fit

5 100 15.77

10 100 9.8320 100 3.78

30 100 1.68

40 100 1.08

Removal of LiberalizationSigma=5, Tau=100, MOF=15.77

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5 10 15 20

trade growth

GDP_indeximp_histimp_scn

Removal of LiberalizationSigma=40, Tau=100, MOF=1.08

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5 10 15 20

trade growth

GDP_indeximp_histimp_scn

For More Information

ebalistreri@usitc.gov http://www.georgetown.edu/faculty/ejb37/

afox@usitc.gov http://www-personal.umich.edu/~alanfox

Construction of Social Accounts Calculate Complete VA matrix with GDPI data on factor

payment shares by industry Aggregate GDP is then consistent with NIPA

Calculate real intermediate purchases by sector If qUse available, If not, use interpolated BEA IO data

Build Make matrix Convert to coefficients, interpolate Multiply by real gross output from GDPI

Calculate final demand components

1996 real iii GDPqVAGDP

1996igiig UseqUseTgtUse ,,

Optimization Problem: VariablesFree VariablesGOi Gross output by industry

IUseg,d Final demand by commodity and category (except trade)

Φi Scalar for total intermediate demand by industry

Fixed ParametersTgtIUseg,d Target final demand by commodity and category

TgtUseg,i Target intermediate use of commodity by industry

Tgtξd Aggregate final demand mix from NIPA accounts

Optimization Problem: Specification

d g dgdg dgg dgd

g i igigiig

g d dgdgdg

TGTIUSETGTTGTIUSETGTIUSETGT

TGTUSETGTUSETGTUSE

TGTIUSEIUSETGTIUSE

21

21

21

,,,

,,,

,,,

Subject to

f i ifd g dg

d dgi igii igi

f ifg igii

ValueAddedIUSE

IUSETGTUSEGOMakeCoef

ValueAddedTGTUSEGO

,,

,,,

,,