Computable General Equilibrium Research Articles

Interconnected and resilient: A CGE analysis of AI-driven cyberattacks in global trade.

The burgeoning interconnectedness of global trade in the digital age not only presents enticing opportunities but also harbors potent vulnerabilities of artificial intelligence (AI)-driven cyberattacks. This study explores the cascading impacts of these disruptive threats on economies, supply chains, and trade, utilizing the intricate lens of Computable General Equilibrium modeling. Through meticulously designed simulation scenarios, we illuminate the potential economic ramifications of cyberattacks, with a focus on regions heavily reliant on digital technologies and interwoven supply chains. The analysis reveals significant declines in real GDP, trade prices and volumes, and trade route disruptions across regions. Notably, economies like China, the United States, the United Kingdom, and the EU, due to their deep integration in global networks, face pronounced vulnerabilities. However, amidst this bleak landscape, hope emerges in the form of cyber resilience. The study showcases the effectiveness of proactive measures like adaptable production systems, diversified trade partners, and robust cybersecurity infrastructure in mitigating the adverse impacts of cyberattacks. Incorporating cyber resilience significantly dampens the reported negative consequences, highlighting the critical role of preparedness in combating digital warfare. This study underscores the urgent need for a global paradigm shift toward cyber resilience. Collective efforts to bolster cybersecurity infrastructures, foster international cooperation in threat intelligence, and establish open and resilient trade frameworks are crucial in navigating the treacherous labyrinth of AI-driven cyberattacks. By embracing resilience strategies and fostering global collaboration, we can pave the way for a more secure and prosperous digital future, where interconnectedness becomes a tool for progress, not a vulnerability to be exploited.

COVID-19 Pandemic and its Economic Impact on the Global Economy: A Computable General Equilibrium Approach

Introduction: The COVID-19 pandemic, caused by the novel coronavirus SARS-CoV- 2, has been a global health crisis since its emergence in late 2019, impacting all aspects of life worldwide. It has revealed vulnerabilities in healthcare systems while also inspiring scientific advancements and cooperation in developing vaccines, highlighting the importance of preparedness and equitable healthcare for future challenges. Method: This paper evaluates the economic impact of the COVID-19 pandemic on the global economy. The study employed the Global Trade Analysis Project model using GTAP database version 10A with 2014 as the base year. The database's 141 regions and 65 sectors are aggregated into 20 regions and 29 sectors. The model used involves a baseline and two policy scenarios. The baseline scenario projected the global economy to 2020 from 2014 using macroeconomic variables, such as real GDP, population, capital stock, and labor supply. Policy scenarios 1 and 2 accounted for the impact of the COVID-19 pandemic and fiscal stimulus package, respectively. Result: The impacts of the pandemic are measured in real GDP, welfare, export and import volumes, trade balance, and output by sector. Simulation results indicate that the real GDP for all regions declined. The impact of COVID-19 on the welfare of countries, including Korea, Japan, the US, Mexico, China, Italy, and Great Britain, varied. In all these countries, the pandemic highlighted existing inequalities and vulnerabilities, affecting countries disproportionately. Government interventions, such as stimulus packages, income support programs, and vaccination campaigns, have aimed to mitigate the impact and support the welfare of the population. The pandemic disrupted global supply chains and increased trade costs, thereby negatively impacting both import and export volumes. The output of some sectors, such as tourism-related sectors, was heavily affected. Conclusion: The COVID-19 pandemic has impacted real GDP, welfare, export and import volumes, trade balance, and output by sector. By examining the specific implications of the pandemic on each of these economic factors, policymakers and researchers can gain valuable insights into the challenges faced and potential avenues for recovery.

Economic impacts of power-to-liquid fuels in aviation: A general equilibrium analysis of production and utilization in Germany

The aviation industry faces an urgent need to adopt sustainable aviation fuels for significant decarbonization. Power-to-Liquid (PtL) fuel is considered a potential game changer, but questions remain about the wider economic impacts of introducing PtL fuel in the aviation sector. This paper examines the economic impacts of introducing PtL fuel blending quotas along with a price policy consisting of a kerosene tax and PtL fuel subsidies for the case of Germany. Based on a detailed supply chain analysis, we apply a social accounting matrix and a computable general equilibrium model to take into account both, the production and utilization perspectives of PtL jet fuel. Our results show that the influence of low blending quotas is mainly limited to the aviation sector, with a 10 % blending quota increasing consumer prices by 7.9 % and reducing aviation industry output by 3.1 %. When quota levels increase, however, the effects go beyond the air transport system. On inter-sectoral level, we identify three main patterns: First, industries that substantially contribute to the PtL fuel supply chain, such as metal products and electrical equipment, see increasing levels in both, domestic production, and imports. Second, aviation upstream industries like transport infrastructure and aircraft production see reduced domestic production and imports. Third, aviation downstream industries, such as delivery services and travel agencies, see substitution effects, where imports partly replace domestic output. Macroeconomic indicators are affected negatively by the quota scenarios, but the relative impact is low as the maximum decrease in the gross domestic product (GDP) does not exceed 0.35 %. PtL fuel production subsidies can largely mitigate the decrease in aviation demand but come at the cost of a stronger reduction in the GDP and government income. Moreover, the sensitivity analysis emphasizes that various assumptions and parameters, such as the cost projections of PtL fuel, import options, and elasticities of demand, affect the intensity of economic consequences. Our analysis implies the trade-offs of policymaking between sectoral and macroeconomic interests in the context of sustainable fuels. The main contribution of this study is the investigation of the broader economic effects resulting from the adoption of PtL fuels in aviation. In particular, the production as well as the utilization perspective are considered simultaneously in this study.

Assessing the regional impacts of a multi‐hosting mega sport event: The case of EURO 2020 in Rome

AbstractUEFA EURO 2020 is the first multi‐hosting mega‐event developed on the entire continent. Often, mega‐events concentrated in one place have turned out to have a modest, or adverse, economic impact due to high costs. Therefore, the ex‐post assessment of the local impact of the four matches played in Rome as a mega‐event is an interesting case study. To this end, we use a Computable General Equilibrium model based on the Lazio regional Social Accounting Matrix. We estimate a significant Gross Domestic Product multiplier at around 1.45. Furthermore, in terms of employment, the event generates an additional net volume equivalent to 9762 full‐time jobs per year.

Toward the full implementation of the water-energy-food nexus in computable general equilibrium modelling: methods and macroeconomic implications

This paper contributes to the advancement of Computable General Equilibrium (CGE) modelling in addressing the Water-Energy-Food (WEF) Nexus. As such, it introduces water resources as a production factor for both the energy sector and irrigated agriculture, as well as their competition for the endowment, aiming to explicitly represent additional components of the WEF with respect to a standard CGE in the literature. Thus, it develops different modelling structures by computing impacts on regional GDP, sectorial prices, and production outputs in response to hypothetical water scarcity scenarios. This analysis allows for the determination of the role of data and modelling assumptions, such as production function, water substitutability with other endowments, water mobility across sectors, and sectorial water intensity, in influencing the results. Finally, the paper develops a dynamic scenario analysis, showing that an enhanced representation of the Nexus can significantly affect the macroeconomic dynamics of the simulations and their regional implications.

Integration of a computable general equilibrium model with an energy system model: Application of the AIM global model

An integrated assessment model AIM (Asia-Pacific Integrated Model) has been used climate change mitigation studies and the core of AIM is a computable general equilibrium model, AIM/Hub. However, the energy representation in the AIM/Hub is abstract and to overcome that shortcoming, this study integrated AIM/Hub with the energy system model AIM/Technology. First, we assessed how the new integrated model differ from the original standalone AIM/Hub. Second, we conducted the exchange of model outputs iteratively and evaluated how the model results converged. Comparing previous and corresponding iteration, the data points with discrepancies greater than 5% at the third iteration were only 5 variables which were minor variables from the full energy system point of view. The macroeconomic implications of climate change mitigation differ between the standalone AIM/Hub and the new integrated model, and however, there was no systematic discrepancies. Overall, the new model is valid for exploring energy-economic scenarios.

Potential Impact of Withdrawal of Generalized System of Preferences for India by European Union

Trade between India and Europe has been growing at strong pace for the last two decades. India’s goods exports to Europe have increased from USD 12.3 Bn in 2002 to USD 68.9 Bn in 2002. During the same time period India’s export products eligible for Europe Generalized System of Preferences (GSP) has also risen in absolute terms from USD 5.8 Bn in 2002 to USD 19.7 Bn in 2022. While the absolute value of GSP covered products has increased, the percentage coverage of India’s export products eligible for Europe GSP has fallen from 47% in 2002 to just 29% in 2022. Since, the end of 2022, India is graduating out of many sectors covered under the GSP regime. While, this is a major concern for policymakers, and exporters in general, the potential impact has not been quantified. This article quantifies this impact applying CGE modelling through GTAP. The results show that, while India’s overall exports are affected only to a minimum extent by the removal of GSP, it is mainly due to the growth in non-GSP sectors and services exports. However, the negative shock on some labour-intensive sectors will have an impact on the country’s overall GDP.

Grappling with the trade-offs of carbon emission trading and green certificate: Achieving carbon neutrality in China

Although our knowledge of national carbon emission trading system and green certificate trading system are powerful incentive instruments that can deliver on increasingly ambitious climate targets in China, there remains an uncertainty of systems' structural reforms. This study builds on and extends a well-established dynamic computable general equilibrium (CGE) model to incorporate carbon trading system and green certificate trading system into the modeling framework, simulating a diverse of system development pathways further allows an exploration of the many possible policy effect. Then, using total factor productivity as a comprehensive indicator to asses policy effectiveness, the evolutionary trend of comprehensive effects under different paths are separately evaluated to discover the reforms’ optimal range. Our work offers main results: First, these instruments provide a price signal. The introduction of a carbon allowance auction drive up carbon prices, while the implementation of a green certificate punishment and the expansion of the trading scope promote an increase in green certificate prices. Second, all policy scenarios that help reduce carbon emission intensity and optimize the power supply structure. However, in achieving the net-zero goal, the green certificate policy incurs more economic costs than the carbon trading policy. Indeed, the combination of multiple policy tools alleviates the decline of social welfare levels. Third, synergism design among policy tools: the focus should be on carbon trading policy from 2021 to 2030, green certificate trading policy from 2030 to 2050, and strengthened policy from 2050 to 2060. Reform measures within policies may need to be introduced in a timely manner. This study offers specific insights and tailored policy proposals to support policymakers in balancing environmental goals with economic and social needs in light of the aforementioned findings.

Economic impacts of meeting China's NDC through carbon taxes with alternative schemes for recycling tax revenues

This study examines the impact of meeting China's Paris Climate Agreement commitment to reduce its emission intensity by 65 % below 2005 levels by 2030 through various policy instruments. We use a dynamic recursive computable general equilibrium model to simulate the economy-wide impacts of administrative mandates and carbon taxes using different revenue recycling schemes. China's GDP in 2030 would be approximately 1 % lower than the baseline if carbon emissions were constrained by mandates. The commitment's economic costs are lower than the carbon constraint case, regardless of revenue recycling. Economic costs are the lowest when carbon tax revenue is recycled to reduce taxes on capital or corporate income. Subsidizing solar and wind energy further reduces emissions, but at a higher economic cost with a GDP loss of about 0.53 %–0.58 % from the baseline. The results highlight the importance of proper design architecture to make carbon taxes more palatable to policymakers and taxpayers.

Evaluating Taiwan's economic and labour market recovery strategies against COVID‐19

AbstractSince its emergence in 2020, COVID‐19 has profoundly influenced the Taiwan economy and employment landscape, leading to differential impacts across sectors. In response to this unprecedented crisis, the Taiwanese government promptly enacted the “Special Regulations on the Prevention and Rescue of Severe Specific Infectious Pneumonia” on February 25, 2020, which came into force on March 13. This study examines the pandemic's effects through various stages, with a particular focus on the service industry, the sector most affected owing to diminished domestic demand. Using a computable general equilibrium model by integrating monthly changes, the study assess the effectiveness of the Taiwan government's interventions in mitigating job losses and stabilising the economy. Our findings indicate that without the government's relief and revitalisation measures, unemployment rates would have surged significantly. The study underscores the critical role of policy interventions in mitigating the economic impacts of the pandemic.

Analyzing Exchange Rate Effects on Trade: Empirical Evidence

In this study, we aimed to find a fair exchange rate for Egypt, exploring how exchange rate policies affect the country’s economic growth and food security. We also sought to answer an important question for Egyptian policymakers: “Do current exchange rate policies help reduce Egypt’s trade deficit?”. We used two methods in our research: First, we applied the purchasing power parity (PPP) method to determine the equilibrium real exchange rate (ERER). Then, we combined the computable general equilibrium model (CGE) with the ERER value from the PPP method to observe how different sectors interact with the overall economy and understand how household incomes and poverty levels are related. Our findings showed that the fair exchange rate is EGP 38.5 per US dollar, according to the PPP method. This new exchange rate may significantly impact the Egyptian economy. Some impacts are positive, such as better real GDP, more exports, and fewer imports; however, these are minor and not significant. On the downside, it may lead to higher inflation, increased prices for goods, and reduced consumption. Moreover, this study highlights the importance of having balanced exchange rate policies that consider Egypt’s unique economic situations, and challenges and align with other economic policies. Experience and reality have shown that exchange rates alone are not the only solution.

Economy-wide Impacts of India–UAE CEPA: A CGE Analysis

The present study investigates the potential trade effects of tariff liberalisation under India–United Arab Emirates (UAE) Comprehensive Economic Partnership Agreement (CEPA) using general equilibrium analysis. The study specifically examines output, employment, exports and welfare effects of India–UAE CEPA in computable general equilibrium (CGE) framework using the Global Trade Analysis Project (GTAP) model and database version 10. The study indicates output gains in manufacturing sector for both countries and an increase in demand for unskilled labour in India. The study argues that the CEPA will result in an increase in global exports of all commodity groups for both India and UAE and a substantial gain in bilateral exports of both countries. The present study suggests that deeper integration through tariff reduction on imports under India–UAE CEPA will be welfare enhancing for both India and UAE. Overall results show that there is a lot of untapped potential to bring the welfare gains for both trading partners. Given the present schedule of tariff reduction of CEPA, a win–win scenario will emerge for both partners in short as well as long run. Finally, the study cautioned about the implications of sensitive list for trade effects and protection from misuse of rules of origin in the CEPA. JEL Codes: F1, F13, F14, F15, F17

Assessing regional employment effects of the national emission trading scheme in China: Does Okun's law work?

Employment creation and climate change mitigation are core tasks for achieving sustainable development goals. Whether or not carbon mitigation policy facilitate employment deserves deep exploration. Through the construction of multi-regional dynamic computable general equilibrium model (CGE) with more scientific energy & environment block, this paper first evaluates regional employment effects of the national emission trading scheme (ETS) in China. Furthermore, we explore the Okun's law of the national ETS based on the mediating effect model. The results show that whether in carbon-intensive industries (CIIs) or non-carbon-intensive industries (NCIIs), employment effects of the national ETS are differentiated across regions. Specifically, the national ETS generally promotes CIIs' employment in Southern, Eastern, Middle Yangtze River and Southwest regions, and has negative effects on CIIs' employment in other regions. Meanwhile, the national ETS brings employment creation to NCIIs of Southern region, while there are opposite results in NCIIs of Northeast region and mixed results in NCIIs of other regions. Moreover, the Okun's law of the national ETS holds in CIIs of each region, but it not fits the data for NCIIs. Therefore, it is important for the Chinese government to consider the differentiated employment effects in different regions carefully rather than adopt one-size-fit-all solution when constructing the national carbon market.

Impact of tariff liberalization on economic and social benefits: Computable general equilibrium application to Kenya

AbstractThis study employed computable general equilibrium policy simulations to examine the impact of import tariff liberalization on socioeconomic outcomes including living standards, cost of living, gross domestic product (GDP) from expenditure, total investment expenditure, intermediate input demand, output, value‐added, tariff revenue, sales tax revenue, indirect tax revenue, direct income tax revenue, factor income tax revenue, and factor demand. Findings from the simulations have policy implications touching on a need to embrace reciprocal tariff liberalization under agreements like strategic trade and investment partnerships and economic partnership agreements as they are associated with welfare gains, reduction in cost of living, and GDP growth. Targeted policy incentives could be directed to specific domestic sectors since tariff liberalization has negative impacts on investment expenditure. Incentives regarding intermediate inputs should be directed to the manufacturing and services sectors for liberalization of agrifood commodities. Targeted policy incentives should be directed to the manufacturing and services sectors which experience decrease in output with tariff reductions. Liberalization of manufactured commodities should be accompanied by value‐added incentives directed to the agrifood and home production–home consumption sectors. For the liberalization of manufactured commodities, targeted policy incentives should be directed to the services sector which experiences job losses while for the liberalization of tariffs on imports of agrifood commodities, targeted policy incentives should be directed to the agrifood and the home production–home consumption sectors, which also lose jobs. These targeted policy incentives could support industrial activity and compensate for revenue loss, especially from customs duties.Related ArticlesGruber, Lloyd. 2013. “Trade, Growth, Poverty, and Politics: Toward a Unified Theory.” Politics & Policy 41(5): 723–64. https://doi.org/10.1111/polp.12034.Onyango, Gedion, and Japheth Otieno Ondiek. 2022. “Open Innovation During the COVID‐19 Pandemic Policy Responses in South Africa and Kenya.” Politics & Policy 50(5): 1008–31. https://doi.org/10.1111/polp.12490.Soto, Gloria. 2012. “Environmental Impact of Agricultural Trade Liberalization under NAFTA.” Politics & Policy 40(3): 471–91. https://doi.org/10.1111/j.1747‐1346.2012.00354.x.

Economic-environmental assessment of emission tax policy in developing countries: evidence from Iran

PurposeThe present study aims at quantifying the likely impacts of an environmental tax on macroeconomic variables and pollution in Iran.Design/methodology/approachThe computable general equilibrium model, which allows the prediction of the economy-wide effects of any change in policy instruments, is applied.FindingsThe main findings reveal that gross domestic product, private consumption and income in both urban and rural areas will follow a declining trend as a result of environmental tax imposition. In a scenario with the highest level of tax, the predicted percentage change to the gross domestic product and private consumption is estimated at −21.32 and −40.96, respectively. In the same scenario, pollution emissions would decrease by 12.4–22.6% for CO2, CH4 and N2O.Originality/valueThis study uses a general equilibrium model to examine the effects of the carbon tax on environmental issues and household welfare, considering the unique conditions and regulations of Iran. While the related literature examines the CO2 tax, the current study covers more pollutants, including CO2, CH4, N2O, CO, SO2 and NOx. In addition, a distinguishing feature of the current study is that it applies a modified version of the social accounting matrix (SAM) database, which includes the heavy subsidies of energy products. Another significant feature of the current study is that it examines tax policy while tax rates are exerted endogenously (compared to previous studies).

Analysis of the impacts of carbon neutral policy portfolios on the economy, environment, and residents' welfare based on computable general equilibrium models

The efficacy of the synergistic interplay of various programs about energy efficiency and emission reduction in China's endeavor to achieve carbon peaking and carbon neutrality remains to be determined. This research constructed a computable general equilibrium (CGE) model to examine the economic, environmental, social, and energy consequences of various policy combinations. Using data from the 2018 input-output table of China, we create 21 industry sectors and examine the combined impacts of different carbon policies. Our findings indicate that the effects of carbon emission reduction are more favorable when multiple carbon-neutral policies are implemented together, compared to the impact of a single policy. Among the various combinations of policies examined, the combination of feed-in tariff subsidy policy (FIT), renewable energy quota policy (RPS), carbon trading, carbon tax, and carbon capture, utilization, and sequestration (CCUS) technology proves to be the most effective. The study predicts that by 2060, this combination of policies could lead to a reduction of 32.5% in carbon dioxide emissions. At the same time, it was discovered that a combination of lower-intensity renewable energy quotas, carbon trading, carbon taxes, and higher-intensity subsidies for carbon capture, utilization, and storage (CCUS) technologies, the synergy indicator θ exceeds 1, indicating a more stable economy; When the carbon tax policy is more robust, and the remaining three policies are more minor, carbon emissions fall the most and are the most ecologically beneficial. Imposing excessively high renewable energy quotas while maintaining the same level of technology and substitutability between fossil fuels and electric energy sources will result in economic instability afterward. Therefore, we suggest that to attain balanced growth of the environment, society, and economy, the government should increase the function of policy combinations and balance several objectives.

Could the EU carbon border adjustment mechanism promote climate mitigation? An economy-wide analysis

Due to concerns about carbon leakage and sectoral competitiveness, the European Union (EU) proposed implementing the carbon border adjustment mechanism (CBAM). The effectiveness and potential negative consequences of CBAM have aroused extensive discussion. From the perspective of the economy-wide analysis, this study uses a global computable general equilibrium model to explore the rationality of CBAM from the aspects of socioeconomic impact and the effects of promoting climate mitigation. Furthermore, the potential alternative mechanism of CBAM is proposed. The results show that CBAM can reduce the EU's gross domestic product (GDP) loss; however, the GDP loss in all other regions increases. Moreover, CBAM raises household welfare losses in most regions, including the EU. Second, although CBAM can reduce the marginal abatement cost in eight regions, it comes at the cost of greater economic losses. Furthermore, the economic and household welfare cost of raising emissions reduction targets in regions like the USA and Japan is substantially higher than the impact of passively accepting the CBAM; therefore, CBAM's ability to drive ambitious emission reduction initiatives may be limited. Finally, for the potential alternative mechanism, from the perspective of reducing economic cost and household welfare losses, the EU could implement domestic tax cuts in the short-term and promote global unified carbon pricing in the long-term.

The economy-wide impact of cooking oil subsidy reforms and compensation to the oil palm industry

This study analyses the impact of eliminating cooking oil subsidies on the economy using two simulations: complete subsidy removal and compensation for the oil palm industry. The study focuses on macroeconomic variables, industrial output, and employment. A Computable General Equilibrium model is used for analysis. The study found that complete subsidy removal leads to negative impacts on the macroeconomy, causing a slight decrease in economic growth. It also results in negative impacts on industrial output and employment. On the other hand, reallocating the revenue to the oil palm industry investment could mitigate these adverse effects, and further leads to an increase in economic growth. The reallocation improves the output of the oil palm industry and reduces its labour demand. The impacts on other industries' output and employment vary. Removing cooking oil subsidy can be a viable option because of its marginal impacts. It's also recommended to compensate the oil palm industry, especially independent smallholders.

Keeping the Best of Two Worlds: Linking CGE and Microsimulation Models for Policy Analysis

Keeping the Best of Two Worlds: Linking CGE and Microsimulation Models for Policy Analysis

Economic and environmental analysis of Malaysia's 2025 renewable and sustainable energy targets in the generation mix

In pursuing the goals of sustainable development and transiting from fossil fuel-dependent electricity generation to renewable and sustainable alternatives as endorsed by COP28, Malaysia set a 31 % target for renewable-energy in the power generation mix by 2025. This underlines Malaysia's commitment to combat climate change, mainly by reducing its economy-wide GDP carbon intensity by 45 % from the 2005 levels by 2030. To better understand the effects of renewable energy expansion on the economy, environment, electricity output and input-mix, a computable general equilibrium model is applied using an updated benchmark. The simulation results show that increasing the share of coal and gas in the power generation mix compromises emission reduction targets. Further, there is a trade-off between subsidized natural gas supplies and power generation and exports. The results also show that a larger proportion of renewable energy leads to improved welfare. As the share of gas and coal in renewable energy generation is not very high, its impact on carbon emissions is limited. However, if renewable energy expansion is complemented by subsidy rationalizations, the positive impacts are more pronounced. In terms of policy implications, the findings suggest that Malaysia must step up its emission reduction efforts by augmenting the generation of renewable rather than non-renewable resources. Complementary initiatives such as emission abatement policies and consumption subsidies for refined oil products and fossil-fuel power generation should be rationalized to expand renewable resources, improve energy security, and attain emission reductions.