Dynamic Computable General Equilibrium Research Articles

Impacts on Regional Growth and “Resource Curse” of China’s Energy Consumption “Dual Control” Policy

Accurately evaluating the effectiveness of the energy consumption “dual control” policy can effectively solve serious the current environmental pollution and promote ecological civilization. However, researchers have rarely considered the impacts on the regional “resource curse” of the energy consumption “dual control” policy. A dynamic computable general equilibrium model (CGE) was built to evaluate the impacts on the regional “resource curse” of the energy intensity control and total energy control policy. The results showed the following. (1) The energy consumption “dual control” policy changes the supply-and-demand relationship of factors and reduces the crowding-out effect of humans and capital. (2) The energy consumption “dual control” policy has restrained GDP growth, and the total output and total investment have declined. However, the impact in regions without the “resource curse” is remarkable. (3) The energy consumption “dual control” policy has a significant inhibitory effect on major pollutants and carbon emissions. (4) The energy consumption “dual control” policy has played a positive role in breaking the regional “resource curse”. The areas with a high and low “resource curse” have become smaller, and the areas without the “resource curse” have increased significantly. The following suggestions are made: (1) increase the flexibility of the “dual control” policy of energy consumption, (2) establish an energy consumption budget management system, and (3) accelerate the establishment of a carbon footprint management system.

Carbon border adjustments or climate clubs: Impacts on African agricultural sectors under different cooperative scenarios

AbstractDespite the rapid acceleration of climate change, international climate negotiations have yet to implement effective mitigation action. This failure can be attributed to the phenomenon of free‐riding behaviours and the adverse effects of unilateral abatement policies, such as carbon leakage. The introduction of a Carbon Border Adjustment Mechanism (CBAM), as planned by the EU and the creation of climate clubs represent two potential solutions. However, both present uncertainties regarding their trade impacts, effectiveness and equity implications, particularly for developing countries. The outcome of these alternative unilateral or cooperative solutions is analysed using a dynamic CGE model, with a particular focus on the EU‐Africa relations and the agricultural sector. The results indicate that the effectiveness of CBAM in preventing carbon leakage and supporting EU climate goals depends on foreign partners implementing domestic carbon pricing mechanisms. Conversely, for African regions, domestic mitigation efforts and exemption from CBAM can enhance export competitiveness on EU markets while reducing global carbon leakage. Overall, the establishment of climate clubs, coupled with the transfer of technology and the diffusion of best practices in agriculture, can support developing countries and facilitate an inclusive and environmentally beneficial development transition.

Economy-wide impact of targeting and repurposing fossil fuel subsidies in Malaysia

Fossil fuel subsidy reform is a critical strategy for fostering cleaner energy systems and promoting sustainable development. The Malaysian government has signalled commitments to implement a targeted fuel subsidy reform where vulnerable households would be unaffected by the direct impact of higher fuel prices even after the reform. But despite this commitment, little is known about the economy-wide impact of the reform. This study employs a dynamic Computable General Equilibrium (CGE) model to examine the economic, social, and environmental impact of a targeted fuel subsidy removal in Malaysia under a spontaneous and gradual implementation scenario. The research also explores the impact of direct cash transfers to households and reinvestment in key sectors of the economy in the aftermath of the reform. Results from the study show that subsidy removal brings positive gains to the Malaysian economy in the medium to long term. Sequencing the phaseout of subsidies, providing compensation to vulnerable households, and reinvesting in education, health, transportation, and food assistance helps to avoid short-term adverse effects on households and output. The study recommends the need for a gradual removal of fuel subsidies that is accompanied by cash transfers to vulnerable households and investment in key sectors of the economy.

Economic impacts of large dams on downstream brickmaking in developing countries

Large dams have positive and negative impacts, including disrupting brickmaking on the floodplains downstream due to flow regulation and sediment reduction, affecting the supply of essential construction material, notably in developing countries. In this study, we introduce an analytical framework to assess the economywide effects of large dams on downstream brickmaking, focusing on Traditional Fired Clay Brick (TFCB). The framework includes three steps: characterizing the impacts on river flow and sediment load using river system modeling and secondary data, understanding the role of TFCB production in the economy based on survey and economic data, and quantifying the economywide impacts of changes in TFCB production using dynamic computable general equilibrium modeling. We demonstrate the functionality of the approach by conducting a case study of the impacts of the Grand Ethiopian Renaissance Dam (GERD) on the Sudanese economy due to changes in TFCB production by comparing two scenarios: “with GERD” and “no GERD.” Results show that Sudan’s accumulated (2023–2050) discounted (at 0.5% annually) Gross Domestic Product (GDP) at factor cost would decline by US$ 6 billion (−0.38%) due to a reduction in TFCB production. Consumer flexibility regarding brick types and the ability of alternative brick sources to fill the demand gap are key determinants of the impacts.

Governance and policy implications of the Inflation Reduction Act: A European perspective

AbstractThis paper examines the US 2022 Inflation Reduction Act (IRA) alongside the EU's Net‐Zero Industry Act (NZIA) and Critical Raw Materials Act (CRMA) of 2023. We analyze their differential approaches to accelerating investment in clean technology, enhancing energy security and fortifying supply chains. Both regions share the objective of diminishing reliance on Chinese dominance in clean industries. The US seeks to stimulate private investment primarily via uncapped tax credits from 2022 to 2031, some of them subject to stringent domestic content requirements. The EU has reacted to the potential violation of World Trade Organization's rules and a possible green investment shift to the US In doing so, the EU is relying heavily on a regulatory strategy, with emphasis on the simplification of procedures. However, the EU's public funding model is vague and leaves details to the discretion of member states, risking fragmentation within the single market. Through the application of a dynamic computable general equilibrium model, we show that a 50% increase in demand for the IRA's uncapped tax credits could nearly triple US GDP outcomes by 2027. We highlight the contrast between the IRA's immediate fiscal incentives and the NZIA's regulatory approach, emphasising that the former are more attractive for firms.

Possible development path for agricultural economic and trade cooperation in FTAAP: A numerical simulation

Exploring the path of developing agricultural economy and trade cooperation in the Free Trade Area of the Asia Pacific (FTAAP) is of great practical significance for deepening economic integration in the Asia Pacific region and strengthening regional agricultural development. This paper proposes three feasible paths based on RCEP, CPTPP, and the integration of RCEP and CPTPP to establish FTAAP. Moreover, a dynamic computable general equilibrium model of global trade is used to simulate the macroeconomic effects and the agricultural effects represented by China in forming FTAAP under these three paths. The research results show that six common policy nodes will promote macroeconomic growth in participating countries, and the effects of the in-depth implementation of RCEP and CPTPP will be greater than those of the initial implementation. Due to the broader base of participating economies and the higher level of openness, establishing FTAAP under Path 3 will yield greater macroeconomic effects and agricultural effects. Therefore, the path based on the integration of RCEP and CPTPP is an optimal selection for economic and trade cooperation of agriculture in FTAAP. All parties should actively overcome the obstacles to forming FTAAP and provide a stable internal and external industrial development environment for regional agricultural economic and trade cooperation.

Contribution of road transport infrastructure in mitigating the inward–immiserizing growth in Cameroon: An externality approach in computable general equilibrium analysis

The issue of immiserizing growth has been largely discussed in the literature since 1958. It describes a country context contending with high volume of exports relatively to its imports on the international market that benefits from high economic growth but losses in households’ welfare. This study aims to investigate the contribution of transport infrastructure to tackle immiserizing growth in developing countries, focusing on the Cameroon economy, a contending with a significant lack in the development of road transport infrastructure. Further, the study enriches the debate on the wider economic impacts, closely related to immiserizing growth. The loss of welfare is observed upstream to the investigations, as a response to the application of two types of fiscal policies: the import tariff and the capital income tax. Through a dynamic Computable General Equilibrium (CGE) model, the effect of road transport infrastructure is explored, using the externalities approach. This is an innovative methodology recently applied to access the economic impacts of infrastructure investment making a difference between productive and non-productive infrastructure investments. The findings reveal that productive transport infrastructure not only reduces the wider economic impact by improving households’ welfare but also enhances economic growth. A 10 percent increase in road transport infrastructure investment funded by import tariff leads to a welfare improvement of 1.94% and 1.66% in both short and long terms compared to respective losses of 0.58% and 0.15% if the generated financial funds are allocated in non-productive infrastructure such as monuments, defense etc. The similar tendency is observed for the capital income tax funding. Thus, policymakers are recommended to accentuate the road construction, in order to shorten the complex interplay between public decisions and households’ living conditions.

Assessing carbon capture and storage technology in industrial joint venture

Carbon Capture and Storage (CCS) technology can effectively reduce carbon dioxide emissions from industrial and energy production processes. Yet the commercialization of CCS technology is hampered by financial requirements. Existing research compares the costs and benefits of business models for individual CCS projects, no studies assess the industry and national levels. Here we use a dynamic computable general equilibrium model, constructure the vertical integration and joint venture business models for CCS. This study assesses the emission and economic impacts of joint ventures between China's high-emission industries and their upstream and downstream sectors. We find that adopting the joint venture model in the coal power sector, compared to the vertical integration model, initially exerts a negative economic impact but can mitigate 0.04 % of GDP by 2060. The chemical industry consistently benefits from the joint venture model both economically and in emission reductions. Downstream sectors of the steel and cement industries are unsuitable for participation in joint ventures. In addition, the joint venture model has significant industry linkage effects, affecting energy consumption, the scale and cost of CCS deployment. This work provides important information for the large-scale commercialization of CCS technology.

The Impacts on Regional Development and “Resource Curse” by Energy Substitution Policy: Verification from China

With the increasing “resource curse” phenomena relating to energy resources in China, research concerning energy substitution policies has become more meaningful. In this paper, a dynamic CGE model was built to evaluate the impacts of energy substitution policies on regional growth and the “resource curse”. The results show the following: (1) Compared to other regions, an energy substitution policy exerts a more considerable influence on economic growth in regions with high “resource curse”. (2) The changes in carbon emissions in regions with no or low “resource curse” are modest. The primary factor contributing to the rapid decline might be energy structure adjustments. As the intensity of substitution varies, the regional disparities in marginal emission reduction costs are expected to increase. (3) Energy substitution policies reduce the severity of high “resource curse” regions. As the intensity of energy substitution increases, the extent of “resource curse” regions decreases accordingly. Some suggestions are given as follows: (1) Further promote energy substitution and speed up the transformation of energy production and consumption modes in China. (2) Accelerate the energy transformation in “resource curse” regions to promote regional sustainable development. (3) Improve energy substitution policies in transportation, industry and other fields.

On the positive economic impacts of port infrastructure development and seaborne trade efficiencies in Sub-Saharan Africa: the case of Senegal

AbstractInefficient port infrastructures is one of the challenges facing Sub-Saharan Africa, particularly as regards the West African region’s economic progress. Using a dynamic computable general equilibrium model, the paper examines how improving port infrastructure in Senegal can increase the potential of seaborne trade, and accelerate economic and social development in the country and the wider region. Despite Senegal's strategic location along the Trans-Saharan trade route in West Africa, infrastructural limitations pose challenges to port capacity. Our findings suggest that improving port infrastructure can increase port productivity, leading to a reduction in costs of imported food products and domestic inputs. As a result, the country's competitiveness in international markets would be enhanced and could stimulate the production of cash crops, industrial food, and chemical products. This would lead to increased food supply and improved purchasing power, supporting the country's food security. Results show that increased efficiencies in maritime exports and imports lead to an overall increase in economic activity, resulting in significant GDP growth, improved welfare, and a reduction in poverty incidence. This growth can be attributed to higher exports and greater availability of imported intermediate inputs at lower prices, making exports more competitive in the global market as export prices decrease.

Economic growth and regional disparities: A long-term perspective for the state of Sergipe, Brazil

This paper aims to build and evaluate long-term scenarios within the economy of the state of Sergipe so as to identify sectors with a greater capacity to leverage the state's economic growth and mitigate regional disparities. We use a dynamic and inter-regional CGE model, calibrated for the year 2015 and 41 sectors. Our simulations capture he effects of sectorial shocks in the state and explore the direct and indirect effects of such shocks throughout the economy. The main results show that sectors such as Agriculture, Transport, Financial intermediation, and Public Utility Industrial Services all have an above average impact on the state’s GDP and contribute to a reduction in regional disparities.

Foreign or Domestic Public Debt for Cameroon’s Development? An Externality Approach

Public debt plays a major role in financing projects that support economic growth and sustainable development. As governments may choose between domestic and external borrowing, a comprehensive assessment of their effects would support this choice. Our study provides an integrative view of economic and social outcomes and compares, through externalities, the impacts of external and domestic public debt as methods of financing development, with a focus on the Cameroonian economy. Utilizing a dynamic computable general equilibrium (CGE) model and a microsimulation analysis, we find that domestic debt has more advantages for Cameroon compared to external debt, as it increases the large-scale economic impact by improving household welfare, boosting GDP growth, and progressively reducing poverty and inequality. It is therefore recommended that the Cameroonian government focus on increasing the use of domestic debt as a method of financing development by implementing policies that support domestic saving and promote the development of domestic debt markets.

Can technological progress abate the negative impact of low carbon policies on economic growth in China?

ABSTRACT Whether technological progress can provide a complementary solution that reduces the economic costs of carbon pricing policies, thereby accomplishing a win-win situation for carbon abatement and economic growth? By developing an improved multi-regional dynamic CGE model that integrates investment adjustment costs into the capital accumulation equation, this study provides a lens through which to evaluate the collective impacts of the national carbon market, carbon tax, and technology progress in China. The findings confirm the substantial potential of carbon pricing policies to curtail CO 2 emissions, highlighting their critical role in climate change mitigation. Yet, it also exposes a trade-off, where these policies might impact GDP growth and exports, necessitating a balanced approach to policy design. The outputs of energy sectors are particularly vulnerable to carbon pricing policies, indicating a need for tailored strategies to support these industries in their transition towards sustainability. The study uncovers that the fusion of carbon pricing policies with technological progress can enhance carbon abatement efforts while softening the economic blow, illuminating a path to sustainable development that balances environmental and economic imperatives.

Assessing the effects of transition to low-carbon electricity generation: A dynamic computable general equilibrium model for the Iranian economy

Assessing the effects of transition to low-carbon electricity generation: A dynamic computable general equilibrium model for the Iranian economy

The economywide recovery measures in Rwanda during the COVID-19 pandemic: How useful a lesson?

In response to the COVID-19 pandemic, governments in many low- and middle-income countries (LMICs) immediately introduced strict public health measures to contain the spread of infection. The economic consequences of these measures were negative and often large in magnitude, necessitating the rapid introduction of economic relief and recovery measures to reinvigorate economic growth and safeguard affected households. Rwanda stands out among other LMICs both for its effective public health policy response and its adaptive economic policy response to COVID-19. Using a dynamic computable general equilibrium (CGE) model of Rwanda, this paper assesses the economywide and welfare impacts of these policy measures and contextualizes results within the overall policy response to COVID-19. Modeling results generated at an early stage of Rwanda’s pandemic experience indicated that relief and recovery measures introduced in 2020 could mitigate COVID-19′s recessionary effects by about 0.8 % points of total GDP, help to recover about 115,000 jobs and, through cash transfers, significantly reduce income losses among poorer households, with total benefits from the measures exceeded their cost by a ratio of 2.2. These results demonstrate the widely replicable value of economywide modeling when used in a timely manner and when positioned within a policymaking process.

Sectoral impacts of climate change in Iran: A dynamic analysis with emphasis on agriculture

Iranian agriculture, the largest consumer of water, is highly vulnerable to sever climate change-induced droughts. This study aimed to analyze the impact of climate change on various sectors, with a focus on agricultural output and gross domestic product (GDP). To achieve this, a dynamic Computable General Equilibrium (CGE) model incorporating a climate damage function was utilized to project the consequences of climate change on various sectors of Iran's economy. The damage function is based on the temperature anomaly. This study simulated the impact of shocks caused by climate scenarios by 2060. The modified Social Accounting Matrix served as the primary dataset for CGE modeling. By simulating climate scenarios up to 2060, the findings indicated that certain agricultural products, such as cereals and livestock, have the potential for an annual output expansion of 2–3.5 % under the most severe climatic scenarios. This expansion is attributed to their lower reliance on capital inputs and their increased final demand for agricultural commodities. Conversely, the growth rates of output expansion and final demand for services products are lower than those for agricultural products. With climate change options, there may be a shift in output composition, favoring crops, agricultural industries, and energy products, while the growth of services output remains comparatively lower. The GDP growth path also deviates from the current path of 1.8 %, reaching rates of 1.5–1.7 %. In the most restrictive scenario, the GDP is projected to decline in the mid-2050s. Similarly, the range for consumption growth is estimated to be 1.8–2.1 %. Climate change does not significantly alter the income distribution within rural and urban income groups. However, it exacerbates rural-urban inequality by favoring urban households with higher consumption levels. The current state of the Iranian economy, especially the agricultural sector, faces increased vulnerability due to climate change. Nevertheless, certain agricultural activities may experience a relatively greater increase in output because of the growing demand for these products.

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.

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.

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.

How will global trade patterns evolve in the long run?

AbstractIn this paper, the evolution of global trade patterns until 2050 is projected with a recursive dynamic computable general equilibrium (CGE) model. Feeding the model with exogenous projections on macroeconomic, demographic, sectoral and trade cost variables, the evolution of trade patterns emerges endogenously from the model. The approach is innovative in both modelling approach and exogenous inputs. GDP growth emerges endogenously in the model because of diffusion of ideas as a result of international trade and trade cost changes are based on estimates of technology and trade policy changes. The projections indicate that (i) because of projected reductions in trade costs, trade will grow more than GDP, generating a global trade‐to‐GDP growth rate of 1.1; (ii) because of structural change, the global share of manufacturing trade falls from 64% in 2020 to 52% by 2050, whereas the share of services trade rises substantially from 24% to 38%; and (iii) because of technological catch‐up, the share in global trade of both developing and least‐developed countries (LDCs) will rise (with developing countries overtaking developed economies around 2035), the share of intra‐developed country trade will fall, whereas the share of intra‐developing country trade and those between developing and developed countries will rise.