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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