The Michigan Model of World Production and Trade: Theory and Practice

This book presents the work that has been done to date with the Michigan Model of World Production and Trade, together with a full description and discussion of the model itself. Developed and refined for more than a decade, The Michigan Model is distinguished among general equilibrium trade models not only for its coverage (34 countries and 29 industries) but for its allowance for a wider variety of important short-run interactions among markets and a greater variety of policy parameters and institutional details than many other models permit. The model is intended as a practical tool for policymakers analyzing the effects of measures such as tariffs, taxes, and exchange rate changes on a set of highly disaggregated patterns of production, trade, and employment.Following an introductory chapter that discusses the development and use of The Michigan Model, its theoretical structure is introduced and compared to the theoretical structure of other computational models and its implementation is presented in terms of data requirements and parameters, methods of solution, and application to various issues. Six chapters then explore a number of different applications designed to analyze the effects of the Tokyo Round of Multilateral Trade Negotiations and post-Tokyo-Round negotiating alternatives, the effects of tariffs on the structure of protection in the U.S. and other major industrialized countries, the effects of domestic tax/subsidies on the structure of protection in the U.S., the U.K., and Japan, the sectoral impact of real exchange-rate changes, and the effect of trade on employment in major industrial countries. A final chapter draws together the lessons of the efforts for computer modeling of trade and for the direction of future research.Alan V. Deardorff is Professor of Economics at the University of Michigan, Ann Arbor. Robert M. Stern is Professor of Economics and Public Policy, also at Michigan.