Dynamic CGE Model Research Articles

Technology Spillovers Embodied in International Trade: Intertemporal, Regional and Sectoral Effects in a Global CGE Framework

This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technology spillovers embodied in international trade within a climate and trade policy framework. Three are the main contributions of the study. First, to include endogenous factor-biased technical change based on trade flows in a CGE model, particularly for energy and capital. Second, to analyze the implications of specific spillovers embodied in trade of capital goods (machinery and equipment), and third, to highlight the implications of accounting for indirect effects induced by spillovers. We find that explicitly modelling trade spillovers reveals significant effects thanks to the transmission mechanisms underlying imports of capital commodities. We then assess the net contribution of modelling trade spillovers within three policy scenarios. The aggregated net effects of spillovers are rather small confirming findings from previous studies. However, there are important international and intersectoral redistribution effects due to technology transfers represented as embodied spillovers.

Impacts of agricultural public spending on Chinese food economy

PurposeThe purpose of this paper is to develop a dynamic computable general equilibrium (DCGE) model to analyze economy‐wide impacts of different types of public spending in China. A particular focus is placed on their impacts on food economy.Design/methodology/approachIn this paper, DCGE model is developed to analyze economy‐wide impacts of different types of public spending in China. The effects of increased agricultural subsidies, agricultural R&D, and irrigation are simulated by using China DCGE model.FindingsThe results show that public spending has significant impact on food production, price, and trade. The increased public spending on agricultural R&D, irrigation, and agricultural subsidy also has modest impacts on other sectors such as industry, service, and GDP growth.Originality/valueThe paper constructs the China dynamic CGE model and analyzes economy‐wide impacts of different types of public spending in China, especially for the food economy.

Dynamic CGE-Model with Heterogeneous Forest Biomass: Applications to Climate Policy

This study introduces a framework for modeling a renewable forest biomass stock interacting with economic sectors in a competitive economy. The equilibrium is formulated as a mixed complementary problem (which explicitly represents weak inequalities and complementary among decision variables and equilibrium conditions). The complementarity format permits detailed modeling of the growth and harvest of a biomass stock together with a second-best characterization of the overall economy. First the complementarity features of economic equilibrium and its integration with an ecological representation of the biomass are provided. Then a stylized numerical example of a dynamic computable general equilibrium model is presented. Finally, illustrative applications of the model for gauging the likely effects of environmental subsidies and taxes intended to promote increases CO2 storage in forest biomass are given, the results are discussed.

Fuel Subsidies and Unemployment: A CGE Model Applied to Iran

This study analyzes the effects of eliminating fuel subsidies on the labour market, focusing on oil producing countries with significantly underpriced fuel commodities. The Islamic Republic of Iran is used as a case study. Two alternative options are analyzed, with the extra revenue from subsidy elimination redistributed back to household as extra income versus directing the revenue into increased investment. A purpose-builit static and dynamic CGE model is deployed in conjunction with a unique Social Accounting Matrix (SAM) of Iran. It is shown that the current structure of the economy is heavily biased towards industries that are crude oil and fuel intensive in production. Redistributing the extra revenue back to households would not be enough to overcome these distortions. The labour market suffers under such a scenario, even though Real GDP and household welfare rise. Industries contract due to the Dutch Disease effect and the more expensive inputs, causing overall production and employment to decline. Channelling the extra income into investment, however, improves the labour market’s fortune dramatically in the long run. Firstly, there is increased capital accumulation due to the rise in investment. Secondly, the structure of the Iranian economy shifts. Capital is directed towards non-fuel or crude oil intensive industries, allowing the economy to adjust away from its current reliance on industries dependent on these inputs. Consequently, employment of all types of labour in the economy experience a marked rise.

Gender Implications of Biofuels Expansion in Africa: The Case of Mozambique

We use a gendered dynamic CGE model to assess the implications of biofuels expansion in a low-income, land-abundant setting. Mozambique is chosen as a representative case. We compare scenarios with different gender employment intensities in producing jatropha feedstock for biodiesel. Under all scenarios, biofuels investments accelerate GDP growth and reduce poverty. However, a stronger trade-off between biofuels and food availability emerges when female labor is used intensively, as women are drawn away from food production. A skills-shortage among female workers also limits poverty reduction. Policy simulations indicate that only modest improvements in women’s education and food crop yields are needed to address food security concerns and ensure broader-based benefits from biofuels investments.

Impacts of the Triple Global Crisis on Growth and Poverty: The Case of Yemen

Yemen is an oil‐exporting and food‐importing country with the highest levels of poverty in the Middle East and North Africa. The impacts of the triple crisis are likely to further complicate pre‐existing conditions of conflict, oil depletion and governance failure. Using a dynamic CGE model, this article finds that oil‐driven growth in 2008 dominated the negative growth impacts of the food crisis, but that growth was not pro‐poor. The financial crisis of 2009 slowed growth sharply and raised the poverty rate to 42.8%, up from 34.8% in 2005/6. Poverty continues to be higher in rural areas, where almost half the population live in poverty.

Gender Implications of Biofuels Expansion in Africa: The Case of Mozambique

We use a gendered dynamic CGE model to assess the implications of biofuels expansion in a low-income, land-abundant setting. Mozambique is chosen as a representative case. We compare scenarios with different gender employment intensities in producing jatropha feedstock for biodiesel. Under all scenarios, biofuels investments accelerate GDP growth and reduce poverty. However, a stronger trade-off between biofuels and food availability emerges when female labor is used intensively, as women are drawn away from food production. A skills-shortage among female workers also limits poverty reduction. Policy simulations indicate that only modest improvements in women's education and food crop yields are needed to address food security concerns and ensure broader-based benefits from biofuels investments.

The economic impact of the New Zealand fiscal stimulus package

Unlike many countries affected by the global financial crisis, New Zealand did not announce a formal fiscal stimulus package. However, via a series of policy announcements beginning in October 2008, by March 2009 the government budget balance had moved towards deficit by 1.6% of 2011 GDP. We interpret this discretionary movement towards deficit as New Zealand's fiscal stimulus package. The package largely comprises three policies: cuts to personal income taxes, cuts to business taxes, and infrastructure spending. We investigate the individual and joint effects of these policies using a dynamic CGE model of the New Zealand economy. We find that the package has a small positive effect on short-run employment, but at a cost to long-run real consumption. We examine an alternative package, which generates a larger short-run employment gain, for a similar long-run real consumption cost.

Towards a Dynamic Ecol-Econ CGE Model with Forest as Biomass Capital

This study presents a Dynamic Computable General Equilibrium model that combines economic and ecological aspects of forest biomass. A framework is introduced for modeling the growth of a biomass stock which interacts with economic sectors. Harvest of and demand for forest products and forest amenities are determined endogenously in an inter-temporally consistent way. The idea is based on a Markovian growth model of the forest. The study demonstrates an approach for incorporating non-market values of forests, such as carbon sequestration, recreation and biodiversity, into a growth model. A simulation illustrates harvest behaviour when the economy is subjected to shocks.

Trade Liberalization and Income Distribution in Cote d'Ivoire: A Simulation with a Dynamic General Equilibrium Model

The main objective of this paper is to assess the potential effects of the WTO agreements on income distribution and welfare in Cote d’Ivoire. For this purpose, a dynamic CGE model is used to analyze the impacts of three scenarios ranging from partial and complete unilateral trade liberalization to multilateral application of tariff cuts according to the Uruguay round as discussed within the Doha agenda. The simulation results indicate that a partial or complete unilateral liberalization would induce a decrease in GDP, household income and household welfare compared to the baseline. Conversely, multilateral trade liberalization should positively affect economic growth, income, consumption and well being for almost all the household categories. However, our results indicate that the liberalization of foreign trade will not significantly alter the structure of income distribution. Changes in the Gini index remain insignificant for all scenarios.

Quota allocation rules in Romania assessed by a dynamic CGE model

Alternative mechanisms for EU ETS (European Union Emissions Trading Scheme) quota allocations within the Romanian economy were evaluated using a general equilibrium model within a dynamic intertemporal framework. Several distribution rules were simulated based on: the historical emissions, the least-cost approach, and the auctioning scheme with and without a preliminary selection of eligible sectors. We found that the resulting marginal abatement cost in ETS-eligible sectors is only €5.75/tCO2 for reducing pollution by 20.7%. Such a low cost is explained by low energy prices and by substitution possibilities with low carbon content resources (nuclear and hydroelectricity). Including all sectors in the trade creates a more flexible market than in the ETS, since more reduction options are available. The ETS has high feasibility for monitoring. All eligible sectors (except refineries and metallurgy) present the lowest abatement costs in the economy. Auctioning introduces a strong carbon price signal, which reduces emission intensity but creates distortions in terms of trade and worsens the country's energy dependency. Environmental policy has modest macroeconomic results and tends to correct the resources allocation. The strong double dividend obtained under certain circumstances indicates Romania's potential for improving its energy efficiency and carbon intensity.

Long-Run Effects of Post-Kyoto Policies: Applying a Fully Dynamic CGE Model with Heterogeneous Capital

The paper develops a new type of CGE model to predict the effects of carbon policies on consumption, welfare, and sectoral development in the long run. Growth is fully endogenous, based on increasing specialization in capital varieties, and speci c in each sector of the economy. The benchmark scenario is calculated based on the endogenous gains from specialization which carry over to policy simulation. Applying the model to the Swiss economy we nd that a carbon policy following the Copenhagen Accord entails a moderate but not negligible welfare loss compared to development without any negative e ects of climate change. Energy extensive as well as capital and knowledge intensive sectors pro t in the form of increased growth rates.

The impact of the 2008 German corporate tax reform: A dynamic CGE analysis

In this paper we develop the dynamic CGE model, ifoMod, which is designed to analyse the impact of fundamental tax reforms and in particular capital income tax reforms for Germany. The model is in line with neoclassical growth theory and features all important behavioural interactions between the four major building blocks of an economy including the firm and household sector, the government and the rest of the world. We consider firms of different legal forms which all face an intertemporal investment problem, a financing problem w.r.t. the optimal choice of debt and equity financing as well as a factor input problem when deciding on the optimal amount of different skill types of labour employed. We show the impact of different types of taxes on the behavioural margins of firms and households. The conducted simulation shows the impact of the latest German corporate tax reform of 2008 on the German macroeconomic variables such as investments, GDP, consumption and household's welfare.

The Dynamics of Tourism's Economic Impact

When considering the economic impact of tourism, it is common to model tourism expenditures in a static model, providing the impact that tourism spending would have if its effects were contained in a single year. This confuses two features; first, that any change in tourism spending has a time dimension and, second, it ignores changes that may occur in years after the change in spending has taken place, or that occur prior to it if the spending is anticipated. This paper uses a dynamic CGE model to examine these effects, providing comparisons between anticipated and unanticipated tourism booms.

The Economic Impacts of a New Dam in South‐East Queensland

Abstract South‐East Queensland has combined the most rapid population growth in Australia with rainfall that has persisted below average for many years. The Queensland Government has responded with a number of plans to supplement existing water supplies in the region. This paper uses a multiregional, dynamic CGE model to estimate the regional impacts of construction of Traveston dam. The magnitude of net welfare benefits of the project depends on underlying assumptions concerning future rainfall patterns. All the mainland state governments are proposing water supply augmentation measures. It is probable that a number of these projects are not justifiable on economic grounds.

THE PEACE DIVIDEND EFFECT OF TURKISH CONVERGENCE TO THE EU: A MULTI‐REGION DYNAMIC CGE MODEL ANALYSIS FOR GREECE AND TURKEY

This paper examines the peace dividend effect of Turkish convergence to EU membership. By employing a multi‐region dynamic CGE model, we examine the prospect for conflict resolution if Turkey becomes an EU member. The model allows us to analyse several scenarios that imply varying amounts of reduction of the military expenditure/GDP ratios. On the one hand, this change will cause a decrease in sectoral demand for military expenditures, while on the other hand, reallocation of the reduced expenditure on (i) education, (ii) tax decrease, and (iii) infrastructure, should have a huge growth impact. Our dynamic CGE simulation experiments emphasize the economic gain for all parties involved.

Evaluating the Impacts of a Disaster in the Tokai Region of Japan : A Dynamic Spatial CGE Model Approach

Natural disasters have a negative effect on people and the regional economy. The central and regional governments have made natural disaster reduction a high priority. In this paper, we develop a dynamic spatial CGE model for evaluating the economic impacts of an earthquake on the Tokai region of Japan. Our model is characterized as a decentralized economy with utility-maximizing consumers and value-maximizing firms in a dynamic context. This model embodies both the spatial interactions among regions and the dynamics of regional investments. A simulation model is constructed of an inter-regional inter-sectoral economy in which Japan is subdivided into 47 regions. All the regions are connected by transportation networks. The model is calibrated for the regional economy in Japan. We analyze the dynamic impacts of a disaster in the Tokai region. Two scenarios are examined. The first is useful for an ex-post economic evaluation. The second scenario shows the importance of investment in terms of protecting the regional economy in the event of a disaster, i.e., an ex-ante evaluation. Our results suggest that any disaster analysis should evaluate the economic impacts of a disaster based on both ex-ante and ex-post criteria.JEL Classification: Q54, R13, R41

A Korea-EU Free Trade Agreement and Analysis of its Economic Effects using a Dynamic CGE Model

A Korea-EU Free Trade Agreement and Analysis of its Economic Effects using a Dynamic CGE Model

Regional macroeconomic outcomes under alternative arrangements for the financing of public infrastructure*

Abstract. We use a dynamic multi‐regional CGE model (MMRF) to evaluate the regional macroeconomic consequences of four methods of financing a program of regional government infrastructure provision. The methods are developer charges, debt, payroll tax and residential rates. We demonstrate that the net gains from a program of public infrastructure development are quite sensitive to the chosen financing means. The net gains are greatest under rates and debt financing, and least under developer charges and payroll tax financing.Abstract. Usamos un modelo CGE multirregional dinámico (MMRF) para evaluar las consecuencias macroeconómicas regionales de cuatro métodos de financiación de un programa de financiamiento de infraestructura por parte de un gobierno regional. Los métodos son cargas al contratista (developer charges), deuda, impuestos salariales y contribución urbana. Demostramos que el beneficio neto de un programa de desarrollo de infraestructura pública es bastante sensible a los medios de financiación elegidos. El beneficio neto es mayor mediante la financiación por contribución y deuda, y menor con la financiación por cargas al contratista e impuestos salariales.

Preferential Trade Liberalisation, Fiscal Policy Responses and Welfare: A Dynamic CGE Model for Jordan

Summary This paper aims at assessing the effects on the Jordanian economy of the Association Agreement (AA) between Jordan and the European Union (EU). Particular emphasis is placed on the effects on consumer welfare. The EU-Jordan AA was signed in 1997 and entered into force in May 2002. It eliminates progressively tariffs on most industrial goods imported by Jordan from the EU. Custom duties on agricultural goods and processed agricultural products are gradually and only partially eliminated. Trade liberalisation is expected to bring about a positive impact on consumer welfare through lower prices of investment and consumption goods. On the other hand, it reduces government revenue due to foregone tariff revenue. Therefore counteracting fiscal measures are required in order to offset the loss in government revenue. In order to capture intertemporal effects brought about by trade liberalisation on the Jordanian economy, a multisectoral dynamic CGE model is specified and calibrated. Simulation results show that the implementation of the AA raises consumer welfare in Jordan and has positive effects on all macroeconomic variables in the long-run, but it reduces consumption in the short-run.