$TITLE  Model M410: International capital flows

SCALAR	TM2	Import tariff for good 2	/0/;

POSITIVE VARIABLES
        X1      ! Activity level for sector X1,
        X2      ! Activity level for sector X2,
        E1      ! Activity level for sector E1,
        E2      ! Activity level for sector E2,
	M1      ! Activity level for sector M1,
        M2      ! Activity level for sector M2,
	KM	! Capital imports
	W       ! Activity level for sector W (Hicksian welfare index),
        P1      ! Price index for commodity X,
        P2      ! Price index for commodity Y,
        PL      ! Price index for primary factor L,
        PK      ! Price index for primary factor K,
        PW      ! Price index for welfare (expenditure function),
	PFX	! Read exchange rate index,
	PR	! Rent wich generate the export demand function
	CONSH	! Income definition for home agent
	CONSF	! Income definition for foreign agent;

EQUATIONS
        PRF_X1  Zero profit for sector X1
	PRF_X2  Zero profit for sector X2
	PRF_E1  Zero profit for sector E1
	PRF_E2  Zero profit for sector E2
	PRF_M1  Zero profit for sector M1
	PRF_M2  Zero profit for sector M2
        PRF_W   Zero profit for sector W (Hicksian welfare index)
	PRF_KM	Zero profit for capital imports

        MKT_X1  Supply-demand balance for commodity X1
        MKT_X2  Supply-demand balance for commodity X2
        MKT_PFX Supply-demand balance for commodity PFX
	MKT_L   Supply-demand balance for primary factor L
        MKT_K   Supply-demand balance for primary factor L
        MKT_W   Supply-demand balance for aggregate demand
        MKT_R   Supply-demand balance for rents
   
        I_CONSF  Income definition for CONSF
	I_CONSH  Income definition for CONSH;

*       Zero profit conditions 

PRF_X1..	PL**(120/170) * PK**(50/170) =G= P1;

PRF_X2..	PL**(2/5) * PK**(3/5) =G= P2;

PRF_E1..	P1 =G= PFX;

PRF_E2..	P2 =G= 0.99 * PFX;

PRF_M1..	100*1.01 * PFX =G= 50 * P1;

PRF_M2..	50 * PFX*(1 + TM2) =G= 50 * P2;

PRF_W..         P1**0.5 * P2**0.5 =G= PW;

PRF_KM..	PFX**0.5 * PR**0.5 =G= PK;

*       Market clearance conditions

MKT_X1..	170*X1 + 50*M1 =G= 70*E1 + 100*W * PW/P1;

MKT_X2..        50*X2  + 50*M2 =G= 50*E2 + 100*W * PW/P2 ;

MKT_R..         10 =G= 10*KM * PK/PR;

MKT_PFX..	50*0.99 * E2 + 70*E1 =G= 50*M2 + 100*1.01 * M1 + CONSF/PFX + 10*KM * PK/PFX;
				   
MKT_W..         200*W =G= CONSH / PW;

MKT_L..         140  =G= 120*X1 * P1/PL + 20*X2 * P2/PL;

MKT_K..         60 + 20*KM =G= 50*X1 * P1/PK + 30*X2 * P2/PK;

*       Income balance states 

I_CONSH..        CONSH =E= 140 * PL + 60 * PK + 50*M2 * PFX*TM2;

I_CONSF..        CONSF =E= 10 * PR;

MODEL ALGEBRAIC /PRF_X1.X1, PRF_X2.X2, PRF_E1.E1, PRF_E2.E2, PRF_W.W, MKT_X1.P1,
		 PRF_M1.M1, PRF_M2.M2, PRF_KM.KM, MKT_X2.P2, MKT_R.PR, MKT_PFX.PFX, MKT_L.PL, 
                 MKT_K.PK, MKT_W.PW, I_CONSH.CONSH, I_CONSF.CONSF /;

*       Check the benchmark (again):

X1.L	=1; 
X2.L	=1; 
E2.L	=0;
E1.L	=1;
M2.L	=1;
M1.L	=0;
W.L	=1; 
P1.L	=1; 
P2.L	=1; 
PFX.L	=1;
PK.L	=1; 
PW.FX	=1; 
PR.L	=1;
PL.L	=1;
KM.L	=1;
CONSH.L	=200;
CONSF.L	=10;

ALGEBRAIC.ITERLIM = 0;
SOLVE ALGEBRAIC USING MCP;

ALGEBRAIC.ITERLIM = 1000;

*       Apply a tariff which improves the terms of trade and home welfare:

TM2	=0.05;

SOLVE ALGEBRAIC USING MCP;