Spatial Aspects of Trade Liberalization in Colombia:A General Equilibrium Approach

This paper offers some preliminary steps in the marriage of some of the theoretical foundations of thenew economic geography with spatial computable general equilibrium models. Modeling the spatial economy ofColombia using the traditional assumptions of CGE models makes little sense when one territorial unit, Bogotá,accounts for over one fourth of GDP and where transportation costs are high and accessibility low, compared toEuropean or North American standards. Hence, handling market imperfections becomes imperative as does theneed to address internal spatial issues from the perspective of Colombia´s increasing involvement with externalmarkets. The paper builds on the CEER Model, a spatial CGE model of the Colombian economy; non-constantreturns and non-iceberg transportation costs are introduced and some simulation exercises are carried out. Theresults confirm the asymmetric impacts that trade liberalization has on a spatial economy in which one region,Bogotá, is able to more fully exploit scale economies vis-à-vis the rest of Colombia. The analysis also reveals theimportance of different hypotheses on factor mobility and the role of price effects to better understand theconsequences of trade opening in a developing economy.