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Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 952:
Climate Policy and Trade: Dynamics and the Steady-State Assumption in a multi-regional Framework

Katrin Springer

Abstract: Most dynamic trade models assume steady state or balanced growth. This paper argues while this can be done in a single region model or a model without trade, the steady state assumption is problematic in a multi-regional setting with trade interactions. This paper shows the consequences of assuming a balanced growth path and discusses several problems which are connected to the calibration of recursive dynamic multi-regional trade models. Furthermore, it is demonstrated how different dynamic specifications of the base run path affect the results of a policy scenario by imposing the Kyoto Protocol. The simulations illustrate that a balanced growth path can not be maintained in a multi-regional trade model due to international trade spill-overs. It is shown that the model results and thus the assessment of climate policy options depend substantially on the dynamic specification.

Keywords: Growth of open economies, Steady-state, Multi-regional dynamic CGE Model, International environmental problems.; (follow links to similar papers)

JEL-Codes: C68; D58; F43; O41; (follow links to similar papers)

40 pages, October 1999

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