Trade - GCAM

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Model Documentation - GCAM

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Model information
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Institution Pacific Northwest National Laboratory, Joint Global Change Research Institute (PNNL, JGCRI), USA,
Solution concept General equilibrium (closed economy)GCAM solves all energy, water, and land markets simultaneously
Solution method Recursive dynamic solution method
Anticipation GCAM is a dynamic recursive model, meaning that decision-makers do not know the future when making a decision today. After it solves each period, the model then uses the resulting state of the world, including the consequences of decisions made in that period - such as resource depletion, capital stock retirements and installations, and changes to the landscape - and then moves to the next time step and performs the same exercise. For long-lived investments, decision-makers may account for future profit streams, but those estimates would be based on current prices. For some parts of the model, economic agents use prior experience to form expectations based on multi-period experiences.

International trade in most commodities in GCAM is done by one of two methods: (1) Heckscher-Ohlin (single global markets), or (2) Armington Style Trade (global trade with regionally-differentiated markets with Armington-like preferences between domestic and imported commodities). Other approaches for trade can also be implemented in the GCAM framework (such as GCAM USA where logit based decisions are made to facilitate trade between the 50-states) See trade details and trade outputs.


The Heckscher-Ohlin theorem explains trade using factor endowments and predicts that each country produces goods with more intensive use of its abundant factor of production (Peter Debaere, 2003[1]; Vanek, 1968[2]). The empirical use of the Heckscher-Ohlin approach assumes products are homogeneous across sources and traded in a single global market (i.e., fully integrated world market). Markets clear at the world level and each region will see the same global price and independently decide how much each will supply and demand of each commodity given that price. A region’s net trade position is dynamic depending on economics, technical change, demand, growth, resources, etc. Under this method for trading goods there is no modeled preference for a given region to demand a commodity from any other specific region.

The trade of agricultural products were mostly modeled using the Heckscher-Ohlin approach in early versions of GCAM (e.g., GCAM v4), and trade of livestock products was fixed in these versions. But GCAM has been updated to the Armington style trade modeling approach for most of the agricultural and livestock products. However, FodderHerb is still modeled using the Heckscher-Ohlin approach and FodderGrass is not traded. Also, major energy commodities such as coal, gas, oil, bio-energy, etc. are also traded in a single world market with the Heckscher-Ohlin approach.

Armington Style Trade

For the agricultural, livestock, and forestry commodities in GCAM (except fodder crops and fish & other meats), we use an Armington style distinction between domestic and imported goods. The Armington approach assumes products are differentiated by source and consumers view goods produced in different countries as imperfect substitutes (Armington, 1969)[3]. The theoretical background and the derivation of the logit-based Armington approach are documented in Zhao et al. (2020)[4]. In this approach, the competition between imports and domestic is governed by a logit sharing function. Imports are from a single global pool that draws from all regions and is also governed by a logit. The logit-based Armington approach requires a segmented regional markets, as opposed to the integrated world market in the Heckscher-Ohlin approach. Thus, it allows differentiating regional prices and tracing gross trade flows.

  1. Peter Debaere (2003) Relative factor abundance and trade. Journal of Political Economy 111, 589-610. 10.1086/374179
  2. Vanek, J. (1968) The factor proportions theory: The n—factor case. Kyklos 21, 749-756. 10.1111/j.1467-6435.1968.tb00141.x
  3. Armington, P.S. (1969) A theory of demand for products distinguished by place of production. Staff Papers 16, 159-178.
  4. Zhao, Xin, Marshall A. Wise, Stephanie T. Waldhoff, G. Page Kyle, Jonathan E. Huster, Christopher W. Ramig, Lauren E. Rafelski, Pralit L. Patel, and Katherine V. Calvin. “The impact of agricultural trade approaches on global economic modeling.” Global Environmental Change 73 (2022): 102413.