From Global Economy-Wide Modeling to Modeling a Small Product Market: The Case of Wine

Under Tom Hertel's guidance, Global Trade Analysis Project's (GTAP) myriad contributions in providing databases and models for economy-wide analysis of the world's markets have been enormous, and deservedly well recognized. Less appreciated by the policy community and many economists has been the additional contribution GTAP has made to improving the modeling of global markets for individual product markets. The smaller the national and global markets for a particular product, the less sense it makes to model them as part of the overall economy. But several of the features of Computable General Equilibrium (CGE) models nonetheless can be incorporated usefully into global product market models. This chapter reports on one such attempt, namely to model the world's winegrape and wine markets. Building on a prototype first reported by Wittwer et al. (2003), a much-improved model was developed by Anderson and Wittwer (2013) and has now been further revised with its database updated to 2014 and projected to 2025. Both the model and the new database are described and, to illustrate the model's usefulness, we compare the 2025 baseline with alternative scenarios chosen to illustrate the empirical importance of possible additional shocks to those markets. One is a more-than-expected strengthening of the US dollar. Another is a set of possible Brexit scenarios, bearing in mind that the United Kingdom has been one of the world's biggest wine-importing countries. We conclude the chapter by mentioning fruitful areas for further work such as expanding the model to include other beverages and analyzing possible increases in beverage taxes as health lobby groups in many countries strengthen their anti-alcohol and anti-sugar drives.