After previous lectures on the structure, agents and closure of the GTAP model, this lecture introduces how to conduct welfare analysis in GTAP model.
After we apply external shocks in mode simulation, it is important to check its impact on welfare gain or loss. Gains in welfare can be achieved by:
- improved allocation of resources
- additional resources
- improved technology
- term of trade (not include in the one region model)
We use welfare decomposition to identify external shocks' impact on the welfare of consumers by dimensions listed above.
We also introduce two measurements of welfare changes:
In simulation, we use the program DECOMP to conduct welfare analysis