Global trade models and economic policy analyses : relevance, risks, and repercussions for Africa

Abstract

Computable general equilibrium (CGE) models are widely used for trade policy analyses and recommendations. Simulation results from these models have also been used as a basis for offering advice to African countries on what positions to take in multilateral trade negotiations. There is however increasing discomfort with the use of these models for policy recommendations, especially in Africa. In this paper we compare the results of several CGE studies that examined the impact of potential Doha Round reforms on Africa and demonstrate that the results differ drastically both in terms of magnitude and direction. Part of the discrepancies in results can be explained by differences in database, model structure, and choice of parameters. Others are, however, difficult to explain because several studies either do not report key assumptions made or do not provide a clear description of how their framework differs from those in the literature. We also show that the modelling approach and the database used in most CGE studies do not take account of key features of African economies that have serious implications for the impact of trade reforms on Africa. Finally, we outline potential consequences of the misuse of CGE models for policy evaluation and suggest pitfalls to avoid if CGE model results are to be taken seriously by policy makers in Africa.