SMART Input Requirements and Output Results
SMART requires the following data used as the starting point for the simulation:
- Trade value by exporting partner which is actually regarded as trade quantity in SMART, by normalizing world price to 1;
- Tariff faced by each exporting partner which allow calculating domestic price (world price + tariff);
SMART requires the following parameters reflecting consumer and exporter behaviors to calibrate the simulation:
- Import demand elasticity may vary by reporter for the product
- Export supply elasticity which may vary by product but must be the same for all varieties of the considered reporter's product (i.e. elasticity is the same whatever the exporting partner);
- Substitution elasticity which may vary by product but must be the same for all varieties of the considered product (i.e. elasticity is the same whatever the exporting partner);
SMART returns the following results:
- Trade effect, which is made of creation effect, diversion effect (exporter side) and price effect (when export supply elasticity is finite);
- Tariff revenue change is calculated by SMART as TR1-TR0 (using the notation above). This result depends on both import demand and export supply elasticity values and is not straightforward.
- Welfare change as defined above. Please note that in SMART refers to Welfare Change in the reports whether it (improperly) mentions Welfare or Consumer Surplus.
Impact of elasticity changes in SMART
Changing elasticity values in SMART will have the following impact on results:
- Import demand elasticity proportionally affects import change. Doubling this elasticity will double the change in imports.
- Substitution elasticity almost proportionally affects trade diversion among exporters, almost because trade diversion reaches its ceiling with existing trade. Doubling the substitution elasticity will almost double trade diversion.
- Export supply elasticity is infinite by default in SMART (using the value 99) and entails import quantity effect only. Changing to a finite elasticity will affect results by transforming part of trade creation (quantity effect) into price effect. Maximum trade creation is achieved with infinite export supply elasticity. Total trade effect (creation effect + price effect) will be lower with any alternative value of export supply elasticity.
SMART Simulation Results details all results provided in the various reports.
Next: Using SMART - Introduction
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The World Bank, 2010