Simulating Trade Policy Changes

KITE - Kiel Institute Trade Policy Evaluation

The KITE model provides a tool for simulating and estimating various types of (trade) policy changes. The underlying model uses a computable general equilibrium (CGE) framework of the type that is commonly described as "New Quantitative Trade Model". The model has originally been developed by Caliendo & Parro (2015). They built a multi-sector version of the Ricardian trade model of Eaton & Kortum (2002), where countries produce and sell domestically as well as internationally according to their relative copmparative advantage. The model extends this framework by allowing for extensive intra- and international input-output linkages where goods and services may enter as both final and intermediate goods. Trade policy is conducted through the tightening or easing of trade barriers in form of tariffs and non-tariff measures.

By now the model has been extensively used to evaluate (free) trade agreements (e.g. NAFTA, TTIP) and trade disputes (i.e. trade embargo), US-China trade war, decoupling of value chains and economic sanction regimes (i.e. sanctions on Russia, NATO sanctions). It derives the economic consequences for production, value added and welfare based on pre-defined scenarios that specify the policies to be evaluated. It allows various types of data sources that can be used in constructing the underlying model variables and/or parameters.

The model is constantly updated to improve efficiency and/or extend the underlying framework. Current projects include the implementation of CO2 footage in production or the introduction of the factor land in the production function.

Publications using the KITE model

Simulating Trade Policy Changes

with Kiel Institute Trade Policy Evaluation