12. TINA Simulation Guide

Learning objectives

By the end of this chapter, you should be able to:

  1. Explain the purpose of an FTA simulation.
  2. Select a country pair and justify the choice.
  3. Identify the difference between trade creation and trade diversion.
  4. Organize simulation outputs into clear tables.
  5. Identify the top gaining sectors for each country.
  6. Convert numerical results into a short policy interpretation.

Why this chapter matters

Regional trade agreements are not evaluated only by asking whether trade increases. A good trade policy analysis asks where the increase comes from.

If an FTA leads a country to import more from an efficient partner, this is likely to generate trade creation. If the FTA shifts imports away from a more efficient non-member toward a less efficient member, this may generate trade diversion.

The TINA simulation project gives students a practical way to apply these ideas.

ImportantPractical note

The exact interface of the TINA platform may change. Use this chapter as an analytical reporting guide. Follow the in-class demonstration for the current clicking sequence.

The basic logic of an FTA simulation

An FTA simulation compares two situations:

Situation Description
Baseline Current trade pattern before the FTA.
Simulation Expected trade pattern after removing or reducing trade barriers between selected partners.

The result is not a prediction with certainty. It is a structured scenario based on the assumptions of the model.

Core concepts

Trade creation

Trade creation occurs when an FTA leads a country to import from a lower-cost or more efficient partner instead of producing the good domestically at higher cost.

This usually improves welfare because resources are used more efficiently.

Trade diversion

Trade diversion occurs when an FTA shifts imports from a lower-cost non-member country to a higher-cost member country because the member receives preferential tariff treatment.

This can reduce welfare if the loss from inefficient sourcing is larger than the gain from lower consumer prices.

Sectoral gains

An FTA may benefit some sectors more than others. Students should identify the top sectors where exports, imports, or welfare effects are concentrated.

Step 1: Choose a country pair

A good country-pair selection should be economically meaningful.

Possible reasons include:

  • existing trade relationship,
  • geographic proximity,
  • GCC or regional relevance,
  • food security relevance,
  • agricultural trade potential,
  • logistics and transport links,
  • policy relevance for Oman.

Avoid choosing countries only because they are easy to find in the platform. The choice should have an economic justification.

Step 2: Define the policy scenario

State the scenario clearly.

Example:

This project simulates a hypothetical free trade agreement between Country A and Country B. The simulation compares baseline trade with a scenario where tariffs between the two countries are reduced or eliminated.

A good scenario description includes:

Item What to report
Countries Names of both countries.
Policy change FTA, tariff reduction, or tariff elimination.
Product scope All goods or selected sectors.
Baseline year The year used by the platform or dataset.
Main outcome Trade creation, trade diversion, and sectoral effects.

Step 3: Record baseline trade

Before discussing FTA effects, describe the baseline.

Use a table like this:

Indicator Country A Country B
Total exports to partner
Total imports from partner
Main export sector
Main import sector
Existing trade balance with partner

Step 4: Record simulation results

The most important results should be reported in a compact table.

Outcome Value Interpretation
Trade creation New efficient trade generated by the FTA.
Trade diversion Trade shifted from non-members to the FTA partner.
Net trade effect Overall change in trade due to the FTA.
Top gaining sector Sector with largest estimated gain.
Most affected non-member Country or region losing market share.

Do not only paste screenshots. Screenshots can support the analysis, but the main results must be written in tables and explained in words.

Step 5: Identify top sectors

Sectoral interpretation is central to the project.

Use a table like this:

Rank Sector Country benefiting Estimated effect Short interpretation
1
2
3

A strong answer explains why the sector gains.

Possible reasons include:

  • high initial tariff,
  • strong existing trade relationship,
  • large market size,
  • comparative advantage,
  • geographic proximity,
  • strong demand growth,
  • lower trade costs.

Step 6: Interpret trade creation and diversion

The simulation is not complete until the numbers are interpreted.

Use this logic:

Result Interpretation
Trade creation greater than trade diversion The FTA is more likely to improve welfare.
Trade diversion greater than trade creation The FTA may shift trade inefficiently.
Effects concentrated in few sectors Sector-specific adjustment may be important.
Large gain for one country only Distributional concerns may arise.
Non-member losses are large The FTA has important external effects.

Worked reporting example

Suppose a simulation produces the following simplified results.

Outcome Value, million US dollars
Trade creation 120
Trade diversion 45
Net trade effect 75

The interpretation would be:

The simulated FTA creates more trade than it diverts. Trade creation is US$120 million, while trade diversion is US$45 million. The net trade effect is positive at US$75 million. This suggests that the agreement may improve welfare, provided that the gains are not concentrated in sectors with large adjustment costs.

Suggested project structure

A clear project can follow this structure:

  1. Title page
  2. Introduction and country-pair justification
  3. Baseline trade relationship
  4. Simulation scenario
  5. Main simulation results
  6. Sectoral results
  7. Trade creation and trade diversion interpretation
  8. Policy implications
  9. Limitations
  10. Conclusion

Common mistakes

Avoid the following mistakes:

  1. Reporting screenshots without explanation.
  2. Saying trade increased without explaining trade creation or diversion.
  3. Ignoring sectoral results.
  4. Ignoring which country gains more.
  5. Treating simulation results as exact forecasts.
  6. Making policy recommendations that do not follow from the results.
  7. Failing to explain why the country pair was chosen.

Key takeaway

A TINA simulation is useful because it connects trade policy to measurable outcomes. The goal is not only to produce numbers. The goal is to explain what those numbers imply for trade creation, trade diversion, sectoral gains, and policy decisions.

Review questions

  1. What is the difference between baseline trade and simulated trade?
  2. Define trade creation.
  3. Define trade diversion.
  4. Why can an FTA increase trade but still reduce welfare?
  5. Why should students report sector-level results?
  6. What information should be included when describing the policy scenario?
  7. Why are screenshots not enough for a final project?
  8. What does it mean if trade diversion is larger than trade creation?
  9. Why is country-pair selection important?
  10. How should simulation results be connected to policy recommendations?

Student checklist

Before submitting your TINA project, check that you have included:

  • country pair,
  • reason for choosing the countries,
  • baseline trade relationship,
  • FTA scenario description,
  • trade creation result,
  • trade diversion result,
  • top three gaining sectors,
  • country-level interpretation,
  • policy recommendation,
  • limitations of the simulation.