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Abstract

This paper illustrates the opportunities of incorporating more advanced functional forms into multi-country trade policy models. It suggests the use of flexible forms such as the Symmetric Generalized McFadden Function (SGMF) or the Normalized Quadratic-Quadratic Expenditure System (NQQES). Particularly if issues namely trade in differentiated products, preferential trade and effects of standards and traceability on bilateral trade are considered the NQQES offers attractive properties since it allows estimating variety specific expenditure elasticities which might compensate for example increased certification costs. A second aim of the paper refers to the critique on the handling of model parameters in calibrated policy models. In general, employed elasticities violate the theoretical conditions. We describe the calibration procedure developed to obtain model parameters consistent with economic theory.

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