Computable General Equilibrium Model Research Articles

The EU–UK Trade and Cooperation Agreement: A short and long-term comprehensive analysis including FDI

This study thoroughly assesses the impact of Brexit through trade, combining a static and dynamic computable general equilibrium (CGE) model and a structural gravity model. Our analysis allows us to shed light on the role of trade and the potential effects of foreign direct investment (FDI), which has received less attention in the context of Brexit. We simulate a hard Brexit and the new trade and cooperation agreement negotiated by Boris Johnson. We analyse several reductions in the United Kingdom's (UK) capital stock, consistent with the empirical evidence on potential reductions in the FDI capital stock after Brexit. This approach allows us to disentangle the effects of trade's static (short-term) impact from its dynamic (long term) impact. We focus on the impact for the UK but offer macro-economic results for the European Union (including individual countries), the United States, China and the rest of the world. The gravity model estimates considerably larger contractions in the UK's gross domestic product but a smaller role for FDI than the CGE. UK services sectors are affected more negatively than what previous analyses of Brexit focusing on trade suggest.

Designing a cost-effective policy mix for transition toward net-zero emissions: a case study of the mid-term plan by 2035 of Taiwan

This study explores the design of a cost-effective climate policy mix for transition toward net-zero emissions in the mid-term (by 2035). Its novelty lies in the methodological advancements through the development of a soft-linking procedure that integrates a top-down computable general equilibrium model with a bottom-up energy system model. The integrated assessment focuses on the climate policy mix under the framework of Taiwan’s Climate Change Response Act passed in 2023. The analysis shows that a policy mix combining investments in energy transition with user-pay hybrid pricing measures can facilitate cost-effective mitigation and enhance public acceptance. The proposed hybrid pricing includes cost-based electricity pricing and a two-step carbon pricing strategy that encourages early action (before 2030) for larger emitters. Finally, we demonstrate that accelerating the transition is crucial, as it reduces the economic costs of meeting emission targets by inducing further investments in energy efficiency improvement and lowering the carbon pricing levels required to close the abatement gap.

Cumulative effects of energy and water economic policies: Framework development and a case study in China

Due to the existence of an energy–water nexus, energy–related economic policies (such as carbon taxes) can influence the consumption of water resources, and water–related policies (such as fees for water use) can influence the consumption of energy. Previous research focused on the direct effects of energy and water policies (i.e., an energy policy's effects on energy conservation, and a water policy's effects on water resource conservation) and on the indirect effects (i.e., an energy policy's effects on water resource conservation, and a water policy's effects on energy conservation). However, they neglected the cumulative effects (i.e., the effects under simultaneous implementation of the two policies, which differs from the sum of the effects under separate implementation of the two policies). This is an important omission given that both economic policies are implemented simultaneously, and exhibit interactions that produce cumulative effects. In the present study, we developed a framework to analyze the cumulative effects of water and energy policies. In this framework, we developed a computable general equilibrium model and a model to assess their cumulative effect. The cumulative effects were analyzed from both the environment and macroeconomy perspectives. China was adopted as a case study. We found that the cumulative effects on energy conservation, water conservation, and carbon emission reduction were greater than the effects of only one kind of policy, but that antagonistic effects also occurred, with their strength increasing with increasing intensity of the policy.

Fuel Subsidies in Ecuador: A Computable General Equilibrium Model for Targeting Evaluation

Fuel Subsidies in Ecuador: A Computable General Equilibrium Model for Targeting Evaluation

Evaluating the impact of a 24-hour economy on Ghana's economic landscape: A computable general equilibrium approach

The National Democratic Congress (NDC), Ghana's leading opposition political party, has unveiled an ambitious ‘24-hour economy’ policy proposal ahead of the country's forthcoming general elections in 2024. The policy aims to revitalise the nation's economic landscape by fostering round-the-clock operations in key sectors. This paper employs a dynamic Computable General Equilibrium (CGE) model framework, underpinned by the 2015 Ghana Social Accounting Matrix (SAM) and the 2021 Ghana Population and Housing Census (PHC) data, to evaluate the potential impact of the policy on Ghana's economy.Results indicate that under the proposed ‘24-hour economy’ policy, Ghana's real GDP growth (not to be confused with GDP growth rate) in ten years would be 31.71 % higher than it would have been under a ‘business-as-usual’ scenario in the same timeframe. This indicates substantial augmentations in economic output within the Ghanaian economy under a ‘24-hour economy’ setting. Further, the policy would generate more than 3 million jobs within five years of its implementation, with manufacturing, agriculture, wholesale and retail trade, services, construction and transport sectors experiencing substantial employment gains.The policy's transformative effects are driven by its ability to stimulate capital investment and capital formation, boost productivity and increase household incomes.The paper concludes that the NDC's proposed ‘24-hour economy’ policy holds substantial potential for transformative economic growth in Ghana. However, there are potential challenges associated with the implementation of the policy, which then necessitates a holistic approach to policy formulation, focusing on inclusive growth and sustainable development strategies.

An economy-wide and environmental assessment of an imported supply shortage for iron ore: The case of China

Recently, geopolitical conflicts continue to intensify, with profound effects on global supply security of key mineral resources. Considering China's high dependence on foreign iron ore, once there is an import shortage, what impacts will it have on China's macro-economy and environment? Thus, using a computable general equilibrium model, this study introduced import supply disruption behaviour to assess the economy-wide and environmental effects of a large-scale iron ore import shortage on China. Furthermore, two supporting measures of enhancing upstream mining and cancelling steel import tariffs were constructed. The results demonstrated that an import shortage of iron ore will generate a negative effect on China's GDP and household welfare, wherein the higher the disruption degree, the greater the negative effect will be, and the maximum loss of GDP is 5.6 % in 2035. Secondly, total energy demand has reduced obviously, and the largest decline is 8.8 % in 2035. Particularly, the coal demand is most negatively affected by GDP loss, shrinking by up to 11.4 % by 2035. Meanwhile, the oil and gas demands have also dropped to some degree. Thirdly, the import disruption will help to reduce carbon emissions (by up to 9.9 % in 2035), but also have obvious environmental benefits. Finally, both measures will help alleviate the negative socio-economic impacts; however, the overall effects will be better if enhancing upstream mining is complemented by carbon pricing.

Promoting Decarbonization in China: Revealing the Impact of Various Energy Policies on the Power Sector Based on a Coupled Model

The carbon emissions of the power industry account for over 50% of China’s total carbon emissions, so achieving carbon peak and carbon neutrality in the power sector is crucial. This study aims to simulate the impacts of three energy policies—carbon constraints, the development of a high proportion of renewable energy, and carbon trading—on China’s energy transition, economic development, and the power sector’s energy mix. Through the construction of a dynamic computable general equilibrium (CGE) model for China and its integration with the SWITCH-China electricity model, the impact of diverse energy policies on China’s energy transition, economic progress, and the power mix within the electricity industry has been simulated. The integration of the SWITCH-China model can address the limitations of the CGE model in providing a detailed understanding of the specific intricacies of the electricity sector. The results indicate that increasing the stringency of carbon restrictions compels a reduction in fossil energy use, controlling the output of coal-fired power units, and thereby reducing carbon emissions. The development of a high proportion of renewable energy enhances the cleanliness of the power sector’s generation structure, further promoting the national energy transition. Implementing a carbon trading policy, where the entire industry shares the burden of carbon reduction costs, can effectively mitigate the economic losses of the power sector. Finally, the policies to further enhance the implementation of carbon trading policies, strengthen effective governmental regulation, and escalate the deployment of renewable energy sources are recommended.

US international trade policy: Scenarios of protectionism and trade wars

US international trade policy under both the Trump and Biden administrations has been increasingly protectionist. This paper considers two policy scenarios under active discussion: (1) an across-the-board increase in all US tariffs by 10 percentage points, and (2) a severe escalation of the US trade war with China. The scenarios are analyzed using a multi-country computable general equilibrium (CGE) simulation model of the global economy. Trade wars or policy regimes of widespread protection will increase tariffs in many sectors simultaneously and include both final goods and intermediate inputs. The impacts are complex, with a web of direct and indirect forces coming into play across domestic and international markets. The global CGE model captures these mechanisms, including both short and long-run effects, with and without retaliation by partner countries. In a world economy where the US accounts for only 10 % of global trade and potentially rival trade bloc have emerged in Europe and E&SE Asia, the US is no longer hegemonic in global markets. We find that across-the-board tariffs do not protect manufacturing jobs because the cost of imported intermediate goods increases, raising costs in manufacturing production. The US trade war with China leads to a dramatic fall in bilateral trade. Other countries expand their trade to China and the US with the exception of closely linked partners (e.g. Canada and Mexico and all countries in E&SE Asia). We find that the world economy can adjust to US trade wars, diverting trade around the US.

ASSESSING THE IMPACT OF RUBBER DEVELOPMENT POLICIES ON THE NATIONAL ECONOMY, INTRA-SECTOR DYNAMICS, AND EMPLOYMENT: UTILIZING A COMPUTABLE GENERAL EQUILIBRIUM MODEL APPROACH

Purpose – This research explores the effects of three rubber development policies on Thailand's economy and employment: increasing import taxes on rubber products, raising the rubber export tariff (CESS), and boosting domestic rubber consumption. The goal is to strengthen the rubber industry's foundation by promoting policies that enhance domestic rubber utilization, expand the rubber processing industry, and support farmer institutions.Methodology – Using a Computable General Equilibrium (CGE) model, the study analyzes the impact of these policies. Expert brainstorming sessions and in-depth interviews provided additional insights, guiding recommendations for government strategies to streamline rubber supply management and support the entire rubber production chain.Results – Key findings include: 1) Raising the rubber export tariff has minimal impact on the overall economy. 2) Mandating 30% domestic rubber utilization leads to modest economic growth and employment increases, despite Thailand's limited production structure. And 3) Increasing tariffs on imported rubber products has significant macroeconomic effects: a 10% tax increase results in 3.63% economic growth (612,707.70 million THB) and a 2.93% price rise. Employment increases by 6.69%, rubber product prices surge by 23.287% to 26.094%, and primary rubber prices rise by 41.091%.Implications – Policy recommendations include: Streamlining national rubber supply management, supporting upstream rubber production and creating value-added products, aligning rubber research with synthetic rubber needs, - enhancing domestic rubber usage and procurement regulations, developing new strategies for rubber growth, promoting the rubber glove industry, and achieving a 40:60 ratio of natural to synthetic rubber within five years, Establishing rubber special economic zones and strengthening farmer institutions and the Rubber Authority of Thailand (RAOT), and addressing low productivity per acre, establishing a central market, and creating an online platform for future rubber trading to boost producers' earnings and global competitiveness.Originality/Value – Implementing a 10% tariff increase on imported rubber products, comprehensive rubber system management, and maintaining a 30% domestic rubber usage rate are crucial. These measures are expected to invigorate the rubber market and enhance producers' earnings, securing a sustainable competitive advantage globally.

What Are the Economic Impacts of Indonesia’s Export Ban? A Computable General Equilibrium Analysis

This study aims to assess the economic impact of the mineral export ban on Indonesia and other countries. The comparative-static version of the computable general equilibrium model (Global Tarde Analysis Project (GTAP)) is used to analyse the economic impact of the export ban, with a particular focus on GDP, welfare, terms of trade and external trade. The most recent GTAP version 9 database was used for the modelling simulations of the Indonesian export ban. The GTAP version 9 database has three reference years: 2004, 2007 and 2011. It already aggregates 140 regions and 57 sectors. The modelling simulation results show that the policy of bauxite, copper and tin export tyres benefits the Indonesian economy. Meanwhile, Indonesia’s export ban policy harmed the economies of other countries, particularly China, Japan, India, Korea and the EU-28.

Regional Comprehensive Economic Partnership Can Boost Value-Added Trade in Food and Non-Food Sectors in Asia-Pacific Economies.

This study examines the effects of the Regional Comprehensive Economic Partnership (RCEP) on the value-added trade of food and non-food sectors. This study uses a global computable general equilibrium (CGE) model coupled with an extension module for the origin decomposition of value-added flows embodied in gross trade. The results suggest that by cutting down tariff and non-tariff barriers, the RCEP would significantly stimulate the economies of and gross trade among Asia-Pacific countries involved in the agreement. The potential benefits of the RCEP will be overestimated if we ignore the origin of value added and measure the benefits by gross exports. The domestic components of bilateral value-added flows between RCEP members would increase greatly, indicating an increasingly integrated value chain between RCEP members. Import taxes and non-tariff barriers for processed food, textiles and clothes, and heavy manufacturing are relatively significant in the region, so the RCEP would significantly improve their value-added exports. The domestic component of value-added exports in agricultural products and processed food from RCEP members would be increased significantly, indicating that the closely integrated food value chain boosts the food economies of RCEP members.

Multiplier effect on reducing carbon emissions of joint demand and supply side measures in the hydrogen market

Hydrogen energy is critical in replacing fossil fuels and achieving net zero carbon emissions by 2050. Three measures can be implemented to promote hydrogen energy: reduce the cost of low-carbon hydrogen through technological improvements, increase the production capacity of low-carbon hydrogen by stimulating investment, and enhance hydrogen use as an energy carrier and in industrial processes by demand-side policies. This article examines how effective these measures are, if successfully implemented, in boosting the hydrogen market and reducing global economy-wide carbon emissions using a global computable general equilibrium model. The results show that all the measures increase the production and use of low-carbon hydrogen, whether implemented alone or jointly. Notably, the emissions reduced by joint implementation of all the measures in 2050 become 2.5 times the sum of emissions reduced by individual implementation, indicating a considerable multiplier effect. This suggests supply and demand side policies be implemented jointly to maximize their impact on reducing emissions.

Impacts of trade facilitation on greenhouse gas emissions in the Belt and Road Initiative countries

The Belt and Road Initiative (BRI) trade facilitation could generate both economic and environmental impacts. Nevertheless, the resulting impacts on greenhouse gas (GHG) emissions remain unclear. Here we apply a global computable general equilibrium model to simulate the economic changes induced by BRI trade facilitation and thereby assess the GHG emissions burdens within China and the main economic corridors. We show that trade facilitation results in economic improvement at the expense of emissions for most BRI countries. Yet economic growth in these countries has outstripped emissions growth. Especially for countries within the New Eurasian Land Bridge (ELB), most of them even have achieved decoupling of economic growth from emissions under trade facilitation, which is mainly benefited from the decrease of non-CO2 GHG emissions. We stress that non-CO2 GHGs mitigation in more developing regions is essential to achieve an economic-environmental win-win state, in the context of future global trade liberalization.

Climate policy options: A comparison of economic performance

Countries are increasingly willing to implement climate policy. However, many countries prefer policy instruments other than carbon pricing. In this paper, we implement carbon taxes, feebates, subsidies and regulation in a computable general equilibrium (CGE) model. This allows quantifying the trade-offs between policy options for the major emitters. We find that in the electricity sector, where technology alternatives are very substitutable, the different policy instruments generate similar outcomes. In the energy-intensive and trade-exposed sectors, where substitution is much more difficult, carbon pricing provides the highest flexibility and thus lowest cost. Further, we provide the first analysis of asymmetric policies, that is the simultaneous use of different policy instruments by the major emitters. Using regulation or subsidies instead of carbon pricing in the electricity sector allows countries to gain small amounts of market shares internationally. Applying regulation to the energy-intensive and trade-exposed sectors, however, backfires by costing regulating countries market shares.

Toward Enhancing Wastewater Treatment with Resource Recovery in Integrated Assessment and Computable General Equilibrium Models.

Sustainable water management is essential to increasing water availability and decreasing water pollution. The wastewater sector is expanding globally and beginning to incorporate technologies that recover nutrients from wastewater. Nutrient recovery increases energy consumption but may reduce the demand for nutrients from virgin sources. We estimate the increase in annual global energy consumption (1,100 million GJ) and greenhouse gas emissions (84 million t CO2e) for wastewater treatment in the year 2030 compared to today's levels to meet sustainable development goals. To capture these trends, integrated assessment and computable general equilibrium models that address the energy-water nexus must evolve. We reviewed 16 of these models to assess how well they capture wastewater treatment plant energy consumption and GHG emissions. Only three models include biogas production from the wastewater organic content. Four explicitly represent energy demand for wastewater treatment, and eight include explicit representation of wastewater treatment plant greenhouse gas emissions. Of those eight models, six models quantify methane emissions from treatment, five include representation of emissions of nitrous oxide, and two include representation of emissions of carbon dioxide. Our review concludes with proposals to improve these models to better capture the energy-water nexus associated with the evolving wastewater treatment sector.

Economic consequences of inland waterway disruptions in the Upper Mississippi River region in a changing climate

Inland waterway locks have become significant bottlenecks in waterway networks worldwide due to the disruptions caused by aging infrastructure and climate change. While these locks have traditionally received attention for traffic issues, the disruptive impact on the regional economy remains unclear. This study addresses this knowledge gap by assessing the economic impacts of inland water transportation system failures, specifically focusing on disruptions in agricultural commodities within the Upper Mississippi River–Illinois River (UMR–IR) region. These disruptions encompass both unscheduled climate-induced extreme weather events and scheduled maintenance and repair work due to internal system failure. To capture the spatial interdependence between the regional economy and shipping rate changes caused by disruptions, we developed an integrated modeling approach. This approach combines spatial econometric modeling and multi-regional computable general equilibrium modeling techniques. Detailed weekly data from 2013 to 2021, including variations in inland barge rates and environmental conditions, were utilized. The assessment reveals that lock closure events in the UMR-IR region have severe economic consequences, impacting both the region itself and beyond. Conversely, transportation resilience achieved through modal substitution from barge to rail services during disruptive events can substantially reduce GDP losses. Specifically, such resilience measures can reduce GDP losses in the UMR-IR region by 6.6–24.2% and in the rest of the USA by 5.2–19.5%. Overall, these research findings carry significant implications for future planning and investment in inland waterway systems.

General equilibrium analysis of carbon tax policy on water-energy-food nexus efficiency

Carbon-reduction policy affects socio-economy and Water-Energy-Food (WEF) nexus contained therein. Existing studies concentrated on policy performances on resource consumption, but cannot quantify the impacts on resource utilization efficiency. To fulfill such gap, this study developed an integrated evaluation method through integrating computable general equilibrium model with data envelopment analysis to explore the impact of carbon tax on WEF environmental efficiency of China. Results show that increasing carbon taxes would improve the energy structure and reduce carbon emissions. While the increased cost of fossil fuels would have negative but limited impacts on economic output of water supply and food sectors through economic activity connections. Synergistic effect of WEF resource conservation could be observed in most production sectors, expect for clean energy sectors. Carbon tax would improve the WEF environmental efficiency expressed as the trade-offs between economic and carbon emission outputs and WEF resource inputs. There are significant differences in WEF efficiency and its growth rate among production sectors, with food sectors experiencing the most significant improvement in WEF efficiency at a carbon tax of 70 yuan/ton. The evaluation results raised the awareness of the performance of carbon tax on WEF nexus and provide a new perspective for promoting WEF nexus efficiency.

A computable general equilibrium model of the monetary policy implications for financial stability in South Africa

A computable general equilibrium model of the monetary policy implications for financial stability in South Africa

Incentive policies to realize large-scale deployment of CCS in China's power sector and its economy-wide impacts

Given the carbon capture and storage (CCS) technology is still in the demonstration phase, large-scale deployment of CCS is urgently needed in the coming decades, especially in the power sector. Therefore, we built a computable general equilibrium model with detailed electricity technology module and assessed the economy-wide impacts of multiple incentive policies on large-scale deployment of CCS in the power sector. Results show that, first, if only CCS is subsidized, without supplementing carbon pricing, it will lead to deviations from the core environmental objectives of CCS development. Secondly, when CCS subsidies are combined with carbon pricing, if the sectoral indirect tax is reduced, the GDP loss can be better alleviated, and it can also have an obvious positive impact on energy conservation and emission reduction. Finally, a gradual sector-coverage way of carbon pricing contributes to further mitigating the accumulated GDP loss, easing sectoral profit losses, and improving positive effects on energy indicators.

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.