The analytic framework for the analysis is the GLOBE model a theory-grounded comparative-static multi-region multi-sectoral CGE model of global production and trade. The model is calibrated to the new GTAP7 database that reflects the global input-output structure of production and trade by origin and destination in 2004. The database distinguishes 113 geographical regions and 57 commodity groups For the present study we retain the full geographical detail for the individual least developed country regions and other DfID focus countries identified in the dataset along with a rang of other developing country regions and three OECD regions. As shown in table 1 the model distinguishes 32 regions including 19 DfID focus regions and 9 other DC regions.To keep the analysis tractable and allow a compact presentation of results the sectoral aggregation used in this study distinguishes five broad commodity groups and activities : food and food product, fuels, other primary products, non-food manufacturing, and services. The model includes five primary production factors: skilled labour, unskilled labour, capital, land and natural resources.
international trade
Domestically produced commodities are assumed to be imperfect substitutes for traded goods. Import demand is modelled via a series of nested constant elasticity of substitution function ; imported commodities from different source regions to a destination region are assumed to be imperfect substitutes for each other and are aggregated to from composite import commodities that are assumed to be imperfect substitutes for their counterpart domestic commodities the composite imported commodities and their counterpart domestic commodities are then combined to produce composite consumption commodities, which are the commodities demanded by domestic agents as intermediate input and final demand (private consumption, government, and investment). Export supply is modelled via a series of nested constant elasticity of transformation (CET) function; the composite export commodities are assumed to be imperfect substitutes for domestically
consumed commodities, while the exported commodities from a source region to different destination regions are assumed to be imperfect substitutes for each other. The composite exported commodities and their counterpart domestic commodities are then combined as composite production commodities. The use of nested CET functions for export supply implies that domestic producers adjust their export supply decisions in response to changes in the relative prices of exports and domestic commodities. This specification is desirable in a global model with a mix of developing and developed countries that produce different kinds of traded goods with the same aggregate commodity classification, and yields more realistic behaviour of international prices than models assuming perfect substitution on the export side.