The Michigan Model
of World Production and Trade

DESCRIPTION

The Michigan Model of World Production and Trade is a computable general equilibrium (CGE) modeling framework originally developed starting in the mid 1970s by Alan Deardorff and Robert Stern at the University of Michigan. It was intended for the purpose of analyzing the microeconomic employment effects in 29 sectors of the world's major countries due to the Tokyo Round of Multilateral Trade Liberalization. Initially including 18 industrialized countries, it was soon expanded to include an additional 16 newly industrizing and developing countries. In this 34-country version it became known as the Michigan Model of World Production and Trade (not to be confused with another "Michigan Model," the Michigan Quarterly Econometric Model of the United States economy built and maintained by the Research Seminar in Quantitative Economics). The model was used for a variety of purposes in addition to the Tokyo Round, including analyzing the effects of exchange rate changes, the structure of protection, and scenarios of trade liberalization leading up to the Uruguay Round. Published papers on these and other topics were collected into two books published in 1986 and 1990.

In the late 1980's, Robert Stern collaborated with Drusilla Brown of Tufts University to construct a model of the United States and Canada for the purpose of analyzing the effects of the US-Canada Free Trade Agreement. They started with the structure of the Michigan Model, but extended its equations to include features of the New Trade Theory: imperfect competition, increasing returns to scale, and product differentiation. Shortly after, joined again by Alan Deardorff, they expanded this model to include first four and then eight countries and country groups that could be selected in different combinations from the 34-country Michigan Model database. This model, which we now call the Michigan Brown-Deardorff-Stern (BDS) Model, retains the features of the new trade theory introduced by Brown and Stern. Various versions of it have been used to analyze the effects of a variety of policy scenarios, most dealing with actual and potential preferential trading arrangements such as the North American Free Trade Agreement (NAFTA). Papers dealing with these topics have been published in a variaty of books and journals.

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