World Bank CGE Macroeconomics and the Doha Debate

We propose a two-region SAM with trade and aid flows tied together in a social accounting matrix and a model structure heavy on CES-aggregates as a tabletop representation of the World Bank's LINKAGE model. Our goal is to critique standard approaches to measuring “welfare gains” from the Doha Development Agenda. The Bank's simulation models are based on the 1950s elasticities approach to the balance of payments. Under their preferred macroeconomic closure, the results are biased due to an interaction between the government's accounts and LINKAGE’s “Armington” specification of foreign trade under imperfect competition. They also tend to overstate “welfare gains” and exaggerate price responsiveness with the values of Armington elasticities that the Bank usually employs.