Economy-wide Impact Research Articles

Economy Wide Impact of Trade Restrictions on Exporters: Evidence Based on a New Measurement Applied to India

Significant trade barriers exist worldwide despite formal efforts at lowering these. Against this backdrop, the present article proposes to examine the economy wide impact of import restrictions on an exporting country based on a new measure for trade restrictiveness. This measure is based on tariffs, non-tariff measures (NTMs) and border trade restrictions imposed by importing countries. Using India as a case, the empirical results of the article suggest that Indian exporters have been grappling with substantial trade restrictions over the years, particularly on account of NTMs. The economy suffered welfare losses due to fall in exports, output, employment, terms of trade and loss in allocative efficiency. Tariffs and NTMs have received much attention from academia and policymakers. But, due to their relatively smaller share in trade restrictions, trading across border restrictions has received much lesser attention. However, as observed in the present article, though border restrictions appear marginal, their welfare and other macroeconomic impacts are substantial. Hence, to ignore these restrictions is likely to result in significant underestimation of trade restrictions faced by exporters. JEL Codes: F1, F13, F140

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.

Economy-wide impact of a reduction in tobacco use in India

BackgroundPublic policy measures aimed at regulating tobacco use should consider the net gains for the nation, as the tobacco sector contributes to employment and tax revenue while also imposing substantial...

The economywide impact of bioethanol production in South Africa

Bioethanol production as a substitute for petroleum in road transport fuels has been identified as a potential partial solution to environmental and socioeconomic challenges facing developing countries, including South Africa. Biofuels in motor vehicles emit fewer GHGs relative to conventional fuels, and their production can lead to economic growth and associated socioeconomic outcomes, including increased labour employment and improved household welfare. The objective of this paper was to quantify the socioeconomic impact of bioethanol production in South Africa using sugarcane as a feedstock and to assess the effects of increasing the size of the bioethanol plant. The study is based on the 2018 KwaZulu-Natal and South African Social Accounting Matrices (SAM), and two assumed scenarios are considered, namely a scenario where only export destined sugarcane is used to produce bioethanol (scenario I) and a scenario when all sugarcane is used to produce bioethanol (Scenario II). The SAMs modified from the SAMs initially compiled by Conningarth Economists were used to develop an input–output multipliers economic impact model. The production of bioethanol from sugarcane was anticipated to have positive socioeconomic impacts namely, an increase in the country’s GDP, employment growth, gross-capital formation, positive contribution to fiscus, improvement in household welfare and positive contribution to the balance of payment (BOP). Expanding the size of the bioethanol plant is expected to magnify the impacts. The study, therefore, recommends a removal of bottlenecks in bioethanol expansion, including high feedstock cost, limited investment, and absence of mandatory blending policy, amongst others.

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

This study analyses the economy-wide impact of cooking oil subsidy reforms 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.

Exploring the backward and forward linkages of production network in a developing country

This paper applies social network analysis (SNA) techniques to the input–output table in order to investigate the production network of Pakistan’s economy. Through different network measures, it identifies the sectors that exert significant direct and indirect impacts on other sectors. The findings reveal that, overall, sectors have weak forward linkages relative to backward linkages. The services sectors, particularly transportation and trade services, have the highest out-degree (a measure of forward linkages). In contrast, the manufacturing sectors demonstrate comparatively lower connectivity than the services sectors. The sectors of electricity, petroleum, and chemicals emerge as the most widely utilized inputs across various industries. Despite their relatively moderate immediate absorption in downstream industries, these sectors possess the potential to affect other industries indirectly. Considering the combined measures of network analysis, these sectors also emerge as the most crucial sectors in Pakistan’s production network. This suggests that enhancing efficiency in the energy, refining, and petrochemical industries will yield the highest economy-wide impact.

Economy-wide impact of climate smart agriculture in India: a SAM framework

In the context of climate change, the Indian agricultural sector treads in a certain duality between promoting food security in response to the increasing population, but at the same time in ensuring environmental sustainability, and sustained economic growth, especially in developing countries like India. The concept of Climate Smart Agriculture (CSA) emerged from the recognition of this duality. Using the Indian Social Accounting Matrix (SAM) 2017–18, the economy-wide effects arising out of agricultural interventions were estimated, keeping accord with the impacts on sectoral outputs and household incomes from the adoption of varying CSA interventions such as Conservation Agriculture, System of Rice and Wheat Intensification (SRI-SWI) and Natural Farming, fitting the three-pillared criterion of CSA—(1) Productivity (2) Adaptation and (3) Mitigation. Additionally, a shift in cropping patterns from Paddy and Wheat to less emission-intensive crops was also studied. Results show that SRI-SWI provides the highest economy-wide impacts while accounting for lower GHG and water footprint. Alternative crops such as Maize, Sorghum, and Millet have minimal increase in income and output effects while having lower water and carbon intensity compared to rice and wheat. The current study would sensitize policymakers to prioritize suitable policy and institutional measures for upscaling climate smart interventions in India.

Growth and structural transformation – Options for Pakistan

Structural transformation, which signifies a shift towards high value-added production and an elevated standard of living, is a vital ingredient for inclusive growth. Pakistan’s pace of structural transformation has been amongst the slowest and lowest compared to other countries in Asia. Against this backdrop, the purpose of this paper is to quantify the economic benefits of accelerating the rate of transformation (trade and productivity-oriented) in Pakistan. This research explores this relationship using an Input-Output (IO) framework in conjunction with a global Computable General Equilibrium (CGE) model. This allows for the evaluation of the economy-wide impact of exogenous changes in the trade and productivity of critical sectors. The IO framework helps in identifying these key Pakistani sectors by providing backward, forward, and inter-sectoral linkages for each sector. The results of the IO framework show that the sectors with strong backward linkages in Pakistan are “Food, Beverages and Tobacco”, “Textiles and Textile Products”, “Leather and Footwear”, and “Construction”. Whereas “Agriculture”, “Mining and Quarrying”, and “Wholesale and Commission Trade” are the sectors with strong forward linkages. The estimated results from a global CGE Model demonstrate that structural transformation towards promising sectors (manufacturing and services) has a positive impact on the macro-economic variables as well as at the household level in Pakistan.

Economic impacts of reducing methane emissions in British Columbia’s oil and natural gas sectors: Taxes vs technology standards

As countries reduce greenhouse gas emissions to fight the potential impacts of climate change, increasing attention is being paid to methane, which is roughly 34 times more potent than CO2 over a 100-year time span. Governments in many jurisdictions aim to reduce methane by 45–75% in oil and gas sectors by 2030. Methane reductions are often achieved by implementing new technologies and operational techniques, but jurisdictions have discussed the implementation of a methane tax. While several studies have focused on the financial costs of reducing methane emissions through adopting new technologies, little information exists on the economy-wide impacts of these initiatives and the effectiveness of different policy tools. We develop a dynamic computable general equilibrium model for British Columbia, Canada, to evaluate the economy wide impacts of methane technology standards versus taxes. Findings indicate that methane can be reduced by 75% by 2030 using technology standards at a loss of 0.0089% of GDP in 2030. Impacts associated with a methane tax will range from a loss of 0.0071–0.18% in 2030, depending on whether new technologies are assumed to be adopted. If a sufficiently high methane tax incentivizes adoption of new technology, the negative impacts of a tax are lower than that of a standard once the policy is fully implemented. While the overall economy-wide impact of a technology standard is relatively low, we find that it is as much as 65% higher than the direct costs.

Preempting fraud: a financial distress prediction perspective on combating financial crime

PurposeThe prevention of fraudulent activities, particularly within a financial context, is of paramount significance in all spheres, as it not only impacts the sustainability of corporate entities but also has the potential to have a broader economy-wide impact. This paper aims to focus on dual implications associated with financial distress, the first being associated with the temptation to launder funds due to financial distress, and the second being the potential for illicit activities, such as fraud, money laundering or terror financing, to give rise to financial distress.Design/methodology/approachThe paper examines the literature on financial distress and uses theories of financial crime to establish a link between financial distress and financial crime.FindingsIn recent years, there has been a surge in corporate financial distress, particularly in the aftermath of concurrent crises such as the COVID-19 pandemic and the Russia–Ukraine war. Through a comprehensive examination of literature pertaining to financial distress and financial crime, this study identifies a proclivity towards fraudulent conduct arising from instances of financial distress. Moreover, the engagement in such illicit activities subsequently exacerbates the financial distress. An analysis of the relationship between financial crime and financial distress reveals the existence of a vicious cycle between the two.Originality/valueThe results of this study have the potential to advance understanding of the relationship between financial distress and financial crime, which has been previously underexplored.

Ex-Ante Evaluation of India’s Trade Alliance with Indo-Pacific Region: A General Equilibrium Analysis

The study attempts to analyse the economy-wide impact of Indo-Pacific alliance between India and rest of the 45 participating members using computable general equilibrium (CGE) model. We introduce four simulation scenarios in the general equilibrium model. The first scenario is the one in which India bilaterally liberalises trade in terms of both tariffs liberalisation alone and then removal of tariffs and reduction of non-tariff barriers together with all the countries of Indo-Pacific region. The second scenario is when India bilaterally liberalises trade with all the Asian countries of the Indo-Pacific region. The third scenario is when India bilaterally liberalises trade with all the countries of the Indo-Pacific region but excludes China from the region because of the current geopolitical reasons. The fourth scenario is the one when free trade is considered among all the countries in the Indo-Pacific region. The Indo-Pacific alliance seems to go beyond strategic alliance with the 46 Indo-Pacific participating countries, wherein the members gain due to potential movement of capital and welfare and economic gains because of tariff and non-tariff liberalisation among the member countries. The article suggests the road map for maximum welfare gains for India, keeping strategic and economic engagements with other member countries and sub-regions. JEL Code: F15

The regional consequence of a disaster: Assessing employment transition during economic recovery

Orientation: Large-scale events such as disasters, wars and pandemics disrupt the economy by diverging resource allocation, which could alter employment growth within the economy during recovery.Research purpose: The literature on the disaster–economic nexus predominantly considers the aggregate performance of the economy, including the stimulus injection. This research assesses the employment transition following a disaster by removing this stimulus injection and evaluating the economy’s performance during recovery.Motivation for the study: The underlying economy’s performance without the stimulus’ benefit remains primarily unanswered. A single disaster event is used to assess the employment transition to guide future stimulus response for disasters.Research approach/design and method: Canterbury, New Zealand, was affected by a series of earthquakes in 2010–2011 and is used as a single case study. Applying the historical construction–economic relationship, a counterfactual level of economic activity is quantified and compared with official results. Using an input–output model to remove the economy-wide impact from the elevated activity reveals the performance of the underlying economy and employment transition during recovery.Main findings: The results indicate a return to a demand-driven level of building activity 10 years after the disaster. Employment transition is characterised by two distinct periods. The first 5 years are stimulus-driven, while the 5 years that follow are demand-driven from the underlying economy. After the initial period of elevated building activity, construction repositioned to its long-term level near 5% of value add.Practical/managerial implications: The level of building activity could be used to confidently assess the performance of regional economies following a destructive disaster. The study results argue for an incentive to redevelop the affected area as quickly as possible to mitigate the negative effect of the destruction and provide a stimulus for the economy.Contribution/value-add: This study contributes to a growing stream of regional disaster economics research that assesses the economic effect using a single case study.

Analyzing multi-greenhouse gas mitigation of China using a general equilibrium model

Climate actions have focused on CO2 mitigation and only some studies of China consider non-CO2 greenhouse gases (GHGs), which account for nearly 18% of gross GHG emissions. The economy-wide impact of mitigation covering CO2 and non-CO2 GHGs in China, has not been comprehensively studied and we develop a multi-sector dynamic model to compare the impact of CO2-only mitigation with a multi-GHG mitigation policy that also price non-CO2 GHGs. We find that the multi-GHG approach significantly reduces the marginal abatement cost and economic loss to reach the same level of GHG emissions (measures as 100 year global warming potential) compared to a CO2-only scenario. By 2060, multi-gas mitigation can reduce the tax rate by 15.44% and improve real gross domestic product (GDP) by 0.41%. The aggregate gain brought by multi-GHG mitigation are robust to various pathways and but vary across periods and sectors.

An economy-wide impact assessment of agriculture land reform in South Africa

South Africa has been battling with getting land reform right since the advent of democratic rule in 1994 The need to expedite land reform in the country has given rise to a number of radical approaches, including the topic and controversial expropriation of land without compensation discourse. The simulation results presented in this paper provide nuanced policy options for land redistribution in South Africa in the face of the looming expropriation of land without compensation. The analysis in this paper is specific to agricultural land as opposed to land in general. We carried out scenario simulation through Computable General Equilibrium approach using the modified University of Pretoria General Equilibrium Model (UPGEM), which is solved using GEMPACK solution software. Our simulation revealed that there would be adjustment costs regardless of the option(s) chosen. The Inclusive Scenario came up as the most suitable policy option in terms of minimal adjustment costs and allowing the sector to continue to grow, albeit at a lower rate compared to the status quo. Given that agricultural land reform is imperative in South Africa, policy makers should opt for the policy option that is least disruptive to the economy while achieving the desired outcome of more equitable agricultural land ownership and broader participation in the agricultural sector by the majority in the country. Thus, the Inclusive Scenario was found to be the most suitable policy option for agriculture land reform in South Africa.

The impact of COVID-19 on the cultural and creative industries: determinants of vulnerability and estimated recovery times

ABSTRACT In many countries, lockdown regulations and social distancing have had a negative impact on the cultural and creative industries. As vaccination rates rise, and restrictions begin to ease, understanding the recovery paths for different parts of the sector in many contexts will be important. Much sector-specific research has been conducted, but there are far fewer studies that estimate the economy-wide impact of the lockdowns using quantitative techniques. Published research is also dominated by information from the global north, with less information coming from developing country contexts with higher levels of informality. This article uses two surveys (2020 and 2021) of firms and freelancers, and key stakeholder interviews in the cultural and creative industries, in South Africa and a Social Accounting Matrix, to fill this gap. Data on changing business continuity is used to construct a vulnerability score for each sub-sector, and to determine domain-specific factors that affect predicted recovery rates.

Assessing the economy-wide impacts of strengthened bank capital requirements in Indonesia using a financial computable general equilibrium model

ABSTRACT After the 2008 global financial crisis, authorities across the globe stressed the importance of equity capital to absorb losses. While many countries have raised bank capital adequacy requirements (CARs), the comprehensive impact assessment of this policy for emerging economies remains largely unexplored. We use a financial computable general equilibrium (FCGE) model of Indonesia called AMELIA-F to investigate the economy-wide impact of a 100 basis points increase in the CAR of Indonesian banks. Bank balance sheets contract as they move away from holding riskier assets, aiding macroeconomic stability. However, both non-housing and housing investment contract as banks pass on higher funding costs, driving long-run real GDP below baseline. As we discuss, debt-to-equity ratios for these sectors, and the economy-wide private debt to income ratio all fall, thus aiding long-run macroeconomic stability.

Economic links and the wealth effects of layoff announcements along the supply chain

PurposeThis paper investigates the effects of layoff announcement by customers on the valuation and operating performance of their supply chain partners.Design/methodology/approachThe authors collect corporate layoff announcements from 8-K filings submitted by US publicly-traded firms from 2004 to 2017. Using event study methodology, they examine the information externality of corporate layoffs on announcing firms' suppliers.FindingsResults show that suppliers, on average, experience a negative stock price reaction around their major customers' layoff announcements. The negative price effect is exacerbated when industry rivals of layoff-announcing customers also suffer from negative intra-industry contagion effects. Additionally, supply chain spillover effects are asymmetric, with only “bad news” layoff announcements causing significant value implications for suppliers, but not “good news” announcements. Supplier firms also reduce their investments in and sales dependence on layoff-announcing customers in subsequent years.Practical implicationsThis study shows that layoff decisions, often aimed at improving firms' efficiency and effectiveness, create uncertainty for the suppliers' operation and cause negative value implications on firms' upstream partners. Findings should be useful to corporate decision-makers in making layoff decisions.Originality/valueThis paper is one of the first to address the value implications of corporate layoffs on announcing firms' suppliers. It provides a more comprehensive picture of the economy-wide impact of achieving efficiency through employee layoffs.

Economy-wide impact of conventional development policies in oil-exporting developing countries: The case of Mexico

In Mexico, since the 1970's, the O&G sector has been and still is at the center of national development strategies. This faith in the O&G sector for development and energy security is shared by most oil-exporting developing countries. Understanding their present impact potential is relevant to identify insights on their implementation, limitations or even justify their abandonment. This paper aims to analyze the effectiveness of three of such conventional policies regarding their economic, environmental, and social impacts. We implement a scenario methodology, based on the input-output framework, that allows simulating different levels of success in the implementation of these policies. The results confirm the relevance of the O&G sector for the country as its collapse would induce severe economic contractions (about −7%) and job losses (over 350k). Moreover, even though the results suggest that the success of these policies would create substantial benefits, especially when applied in tandem (up to 2.5% of economic growth and around 150k more jobs); other relevant variables that might affect or even nullify the effectiveness of these policies are not considered. Therefore, policymakers of oil-exporting countries should pursue further evidence and pay attention to sustainable development considerations, before judging conventional oil-based development policy strategies.

Macroeconomic and environmental consequences of circular economy measures in a small open economy

This paper investigates the economy-wide impact of the uptake of circular economy (CE) measures for the small open economy (SOE) of Belgium, in particular the impact of fiscal policies in support of lifetime extension through repair activities of household appliances. The impact assessment is completed by means of a computable general equilibrium model as this allows quantification of both the direct and indirect economic and environmental impact of simulated shocks. The results show that different fiscal policy types can steer an economy into a more circular direction. However, depending on the policy type, the impact on the SOE’s macroeconomic structure and level of circularity differs. Furthermore, common claims attributed to a CE (e.g. local job creation or decreased import dependence) can be, but are not always, valid. Hence, policy-makers must prioritize their most important macroeconomic goals and opt for an according fiscal policy. Finally, this paper finds that the CO2 equivalent emissions calculated from a production (or territorial) perspective increase, while they decrease from a consumption perspective. This is explained by the substitution of international activities by local circular activities. This comparative analysis advocates for the consumption approach to assess the CE’s impact on CO2 equivalent emissions.

Agricultural Trade and Ultra-Poor in Pakistan: An Application of CGE Model

In the modern integrated world, the synthesis of countries for trade is often viewed as a crucial source of income and growth disparities across nations. Well-known channels of economic theory can trace the growth effects of trade. However, there is a substantial conflict among empirical studies regarding gains from agricultural trade. Therefore, this study examines the economy-wide impact of agriculture trade liberalization/protection on agriculture production, agriculture trade, income redistribution and public welfare. An extension of the GTAP model known as MyGTAP is employed and the world economy is disaggregated into 20 regions and 11 sectors with Pakistan as a home country. Further, results explore greater gains from an increased level of liberalization towards the agriculture sector in terms of agriculture production, real factors’ wage, terms of trade and household welfare. Rural households enjoy relatively higher real income and income inequality declines in Pakistan in the case of liberalization and protection. However, comparatively protectionism reduces inequality by the lower extent, and said study also points out that neither change in real gross domestic product nor public welfare turns out to be a good indicator of assessing potential impact of trade policies on income inequality.