Phillip M. Bishop

Spatial Price Equilibrium Models with Discriminatory Ad Valorem Tariffs: Formulation and Comparative Computation Using Variational Inequalities

Ad valorem tariffs are a trade policy instrument used by nearly all nations to restrict imports of a wide variety of commodities. Recent emphasis on tariffication as a means of trade liberalization underscores the importance of appropriately incorporating discriminatory ad valorem tariffs (tariffs imposed by the importing country that vary according to the exporting country) into spatial economic models. Both the recently-approved North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) negotiations specify tariffication as a mechanism to lower trade barriers.

Massively Parallel Computation of Large-Scale Spatial Price Equilibrium Models With Discriminatory Ad Valorem Tariffs

In this paper, we develop a perfectly competitive spatial equilibrium model in price and quantity variables in the presence of discriminatory ad valorem tariffs, a widely used trade policy instrument. We derive the equilibrium conditions and formulate them as a variational inequality problem. An algorithm is then proposed for the computation of the equilibrium pattern and convergence results established. The algorithm resolves the problem into very simple subproblems, each of which can be solved simultaneously and in closed form. Finally, the algorithm is implemented on the massively parallel Thinking Machines CM-2 and CM-5 architectures, known as the Connection Machines, and numerical results presented.