General Equilibrium Research Articles

Evaluating impacts of agriculture-led investments on sub-Saharan African countries’ growth and poverty

ABSTRACT Our main objective in this paper is to evaluate the economy-wide effects of alternative ways of financing expanded government spending on agriculture investments in selected African countries, with a particular focus on inclusive growth. Many African countries are typically, fiscally constrained and underinvest in agriculture despite its high share in economic growth as well as the high proportion of poor people residing in the rural sector. We use macroeconomic models that are then linked sequentially to a microsimulation model to understand the macro-poverty effects of interventions for each country. Government extra-spending on agriculture is financed successively by direct taxes, cuts in other expenditures and external financing. The results reveal that for countries to increase inclusive economic growth, they need to invest aggressively in agriculture and source the concessional finance externally where this option is available. However, it is also worthwhile for countries to explore combined mixes of external and domestic fiscal sources in order to optimise the impacts on inclusive economic growth. Our main contribution to the literature on poverty-growth-inequality triangle lies in the consistent modelling of the general equilibrium effects of the alternative financing mechanisms of agricultural investments for selected African economies.

Measuring impacts of retirement age extension on economic growth and labor market in China using a recursively dynamic CGE model

This paper estimates the effects of retirement age extension on China’s economic growth and employment from 2020 to 2050 using a dynamic computable general equilibrium model. This paper focuses on the interaction between retirement and youth employment, particularly the substitution between young and older workers and the trade-off between male and female workers. According to the reform speed of the retirement system, nine policy scenarios are designed, which are divided into three policy options: slow, gradual, and fast reform. The simulations indicated the extension of the retirement age will indeed have a positive impact on China’s GDP growth and the optimal policy is to gradually delay the female retirement age from 50 to 60. Meanwhile, the share of women in their 30s and 50s in total labor demand is intended to increase by 2.01–2.05%, while the employment share of young and middle-aged men will decline by 1.32–1.68%.

How can optimal monetary policies reduce oil sanctions’ impacts? Evidence from Iran

Countries and international organisations have sought to impose sanctions on Iran since the nationalisation of its oil industry (1951), which have been intensified after the Iranian Revolution (1978–1979). Oil sanctions regarding exports, extraction technology and foreign financing are the most critical ones that have significantly affected Iran’s macroeconomy. The fundamental role of monetary policies in reducing the effects of oil sanctions has always been a concern for the policymakers and monetary experts in the Central Bank of Iran (CBI). Therefore, the purpose of this study is to analyse the impact of monetary policies on Iran’s macroeconomic variables against the backdrop of oil sanctions using the dynamic stochastic general equilibrium model. According to simulation results, with the severe oil sanctions but no optimal monetary policies in place, the country will face an increase in the gross domestic product, exchange rate, inflation rate, household consumption, non-oil exports, budget deficit, and seigniorage, but a decrease in oil production, household and government investment, and domestic and imported production. In the context of oil sanctions, considering the inflation and the output gap simultaneously can reduce the CBI’s losses by replacing the current monetary rule with an optimal monetary policy, especially when the inflation gap is weighted higher than the output gap.

Should Bangladesh Join RCEP? Potential Trade and Economic Effects Analysis Using Partial and General Equilibrium Model

Should Bangladesh Join RCEP? Potential Trade and Economic Effects Analysis Using Partial and General Equilibrium Model

Sectoral inflation under fragmentation of information

Abstract We examine the role of fragmentation of information in explaining the dynamics of sectoral inflation. Using the quarterly survey of firms’ prices and costs in Japan, we first document two empirical facts: the sensitivity of sectoral inflation to changes in sectoral costs monotonically decreases with the dispersion of changes in (i) current costs and (ii) those in the past. A direct application of the dispersed information model can reconcile the fact (i) but fails to reconcile the fact (ii). We then extend the standard imperfect information model to construct a dynamic general equilibrium model that features fragmentation of information, wherein a finite number of groups of firms exist and firms in the same group share common idiosyncratic noises in their signals. Using this model, we find that the degree of fragmentation of information plays a crucial role in explaining these empirical facts.

The Value and Profits of Firms

Abstract The real growth of the stock market value of firms has increased from close to 0% on average per year between 1958 and 1980, to 5.2% between 1980 and today. This change coincides with the rise of market power and profits, starting in 1980. This paper proposes to decompose the value of firms based on profits (earnings) rather than dividends. Because firms on average pay out only half of profits in dividends, dividends poorly measure firm performance. I decompose the sources of the rise of the value of all publicly traded firms into: 1. The subjective and risk-free discount factor; 2. Expected future profits; and 3. Shareholder equity (retained earnings). I find that 20% of the rise is due to the discount factor, and 80% is due to profits (half of which is retained earnings). I build a general equilibrium model of the economy where firms have market power; I perform counterfactuals and evaluate the welfare implications. The objective is to study the impact of competition policy. If market power today dropped to the level of 1980, average stock market values would be 40% lower. If market power had never increased in 1980, the average stock values would be 80% lower.

The effects of unilateral climate policy towards agriculture: A case study of Denmark

AbstractTo meet their climate policy obligations towards the EU, some EU member states will have to adopt strict climate policies towards agriculture. Responding to this need, the Danish parliament recently decided to impose a tax on greenhouse gas (GHG) emissions from the country's livestock production. We develop a simple model of primary agriculture and its interaction with the food industry to illustrate the main economic mechanisms determining the impact of a unilateral tax on GHG emissions from domestic agriculture. To study the allocation effects of the GHG tax on agriculture and the impact on the wider economy over time, we then present a disaggregated dynamic simulation model of Danish agriculture, embedded in a large‐scale computable general equilibrium model. The model predicts that a large share of the cost increase induced by the tax will be shifted forward onto higher input prices in the food industry and ultimately onto consumers via higher food prices, but landowners will also bear a significant part of the burden through a fall in land prices. The GHG tax will induce a reallocation from animal to plant production, which would be even more pronounced in the case of a livestock‐specific tax as currently foreseen, and from conventional to organic farming. This will help to reduce the total emissions from agriculture, but the largest share of the emission cuts will stem from a fall in output, as there are still few low‐cost technical abatement possibilities in agriculture.

Green finance and urban carbon emission dual control: an empirical evidence from China

The Chinese government has proposed shifting the regulation of energy consumption and intensity towards a dual control system of total carbon emissions and carbon emission intensity gradually, aiming to promote the continued role of green finance in optimizing resource allocation. To reveal the impact and mechanism of green finance on urban carbon emissions and intensity in China, this paper constructs a general equilibrium model based on endogenous growth theory and employs a two-way fixed effects model for empirical testing. The study finds that: (1) The development of green finance significantly inhibits both the total carbon emissions and carbon emission intensity of Chinese cities. (2) The impact of green finance on urban carbon emissions and intensity exhibits significant regional heterogeneity. In the northeastern regions of China, southeastern regions of the Hu Line, non-resource-based cities, and areas with higher financial efficiency, green finance can significantly reduce both urban carbon emissions and carbon emission intensity. However, in central and western regions and resource-based cities, green finance only suppresses urban carbon emission intensity. (3) Green finance can reduce urban carbon emissions and intensity through two channels: economic scale expansion and technological advancement, while the channel of industrial structure optimization has not yet shown a significant effect. Through research, it can be found that balancing the differences in green finance and carbon emission functions across regions, while fully optimizing the use and allocation mechanisms of resource elements from aspects such as technological innovation, environmental protection, and energy conservation, can enhance the quality and efficiency of economic development. This is of significant importance for green finance in promoting the realization of dual carbon control.

Analyzing Environmental Impact of Energy Audits in Iran Using a Computable General Equilibrium Approach

Analyzing Environmental Impact of Energy Audits in Iran Using a Computable General Equilibrium Approach

Analyzing Wealth Distribution Effects of Artificial Intelligence: A Dynamic Stochastic General Equilibrium Approach

Analyzing Wealth Distribution Effects of Artificial Intelligence: A Dynamic Stochastic General Equilibrium Approach

Unlocking code to livability: indemnificatory housing supply, fiscal decentralization, and housing prices in China

ABSTRACT By developing a multi-sector general equilibrium model, this article investigates the nonlinear relationship between indemnificatory housing supply (IHS) and housing prices in China. Utilizing panel data from 31 provinces from 2009 to 2019, we find that the overall effect of IHS on housing prices is negative at the current stage. However, as the IHS expands, this effect transitions from negative to positive, exhibiting a U-shaped relationship driven by a stable demand-shifting effect and an increasingly dominant supply-crowding-out effect. Furthermore, fiscal decentralization exhibits a nonlinear moderating effect, first strengthening and then weakening the effect of IHS on lowering housing prices. Our findings demonstrate the relationship between IHS and housing prices from a nonlinear perspective, highlight the critical role of fiscal decentralization, and provide policy insights for promoting economic growth and improving social welfare.

Neo-sustainable Growth Theory: Study of Extended HO Model to Productive Factors’ Virtual Movements

This paper aims to fill the critical gap in the existing literature, which often treats trade and sustainability as separate fields. By combining these two dimensions, it would open avenues for new policy recommendations and strategies for promoting sustainable development in an increasingly interconnected global -economy. In terms of theoretical foundations, I link economics, technology and environmental sciences, to enrich the academic discourse and provide a comprehensive framework for future studies. This provides a unique perspective between economic growth and volatility through the lens of intergenerational and international productive factors’ virtual movements. By extending the Heckscher-Ohlin theory to incorporate virtual trade and intergenerational dynamics, the findings offer a fresh theoretical framework and empirical evidence that enrich our understanding of globalization’s mechanisms. The study’s findings on the Production Possibilities Frontier (PPF) and its implications for achieving general equilibrium contribute to ongoing debates about sustainable development and economic interdependencies. The article’s innovative approach and its comprehensive analysis offer a unique foundation to addressing real-world economic challenges. More specifically, using panel data to test the positive and negative relationships between growth and volatility and the impact of productive factors’ virtual movements, I find, the Heckscher-Ohlin theory extended to the virtual movements of factors between countries and between generations is not only empirically verified but constitutes the real foundation of sustainability. Thus, a systematic practicing of the whole set of the extended Heckscher-Ohlin theory’s full set of hypotheses as a nation’s social laws and policies or strategies, is necessarily leading to sustainable development locally and globally.

Carbon Tax Policy, Stranded Assets and "Double Pillar" Regulation

The risk of a transition from climate policy has drawn widespread attention from central banks. By constructing a new Keynes dynamic stochastic general equilibrium model (NK-DSGE) including climate policy, asset quality and "two-pillar" policy, this paper studies the possible transition risk caused by carbon tax policy and analyzes the transition risk from the perspective of stranded assets. On this basis, the effect of the "dual-pillar" policy to deal with the transformation risk is further evaluated and the optimal policy combination is found through the comparative analysis of social welfare. Research shows that:(1)carbon tax policy has a significant emission reduction effect, but it may cause "stagflation" and lead to the "grounding" of carbon-intensive assets, causing a certain risk of transformation.(2)When the central bank deals with the risk of transformation, it should not only focus on the inflation target. At the same time, we should actively stimulate output, promote the development of the low-carbon sector, solve the mismatch between energy supply and demand, and address the root cause of inflation. When the central bank operates the price monetary policy, the central bank can reduce the risk of transformation and improve the operation efficiency through interest rate smoothing.(3)The macro-prudential policy of "brown punishment" can effectively alleviate the risk of transformation and improve social welfare. The macro-prudential policy of "green support" will not only promote the economic recovery, but also lead to the rising leverage ratio of banks in the short term, aggravating the financial risks faced by banks and causing the loss of social welfare.(4)An effective "two-pillar" policy mix is better to the single use of monetary policy tools in mitigating transition risks and improving social welfare.

GTAP-SIMPLE-G: Integrating Gridded Land Use, Crop Production and Environment Impacts into Global General Equilibrium Model of Trade

GTAP-SIMPLE-G: Integrating Gridded Land Use, Crop Production and Environment Impacts into Global General Equilibrium Model of Trade

Analysis of the economic impact of implementing VAT and import duties on the Indonesia-Japan premium beef trade under the IJEPA-FTA scheme: A CGE-GTAP approach

The implementation of import policy raises critical questions related to fiscal and economic aspects, especially regarding the impact of imposing import VAT without exemption facilities and import duties on premium beef imports for the Indonesian economy. This study investigates the effects of taxation tariffs on premium beef from Japan. This research is a quantitative study using a disaggregated Computable General Equilibrium Global Trade Analysis Project (CGE-GTAP) analysis. It focuses on the impact of predictor simulations on economic variables consisting of GDP, exports, imports, trade balance, equivalent variation, domestic production and demand, and prices. The study compares scenarios when VAT is imposed, when import duty preference under IJEPA is applied, and when VAT is imposed and import duty rates are increased to protect domestic producers. The results of this study show that the impact of the IJEPA agreement between Indonesia and Japan, especially regarding the import of premium beef, benefits both parties, even though the tariff regulated in IJEPA for premium beef is the same as the MFN tariff. There was an increase in GDP, imports, trade balance, domestic production and demand, and prices, but exports and welfare declined. Both simulations showed similar results, but the increase in import duties demonstrated a greater magnitude. This means that producers experience a greater positive impact, but consumers suffer greater losses as well. This study demonstrates that the imposition of VAT accompanied by import duty rates in IJEPA can have a positive effect on the national economy. It is recommended to continue this policy.

Gender-neutral vs gender-specific education subsidy: effects on schooling and earning inequality

PurposeDeveloping countries are characterized by gender wage inequality that can be largely attributed to gender-based disparities in education. Education subsidy can be an effective tool for reducing the inequality in human capital formation. However, the parents’ decision in response to the subsidy is a crucial determinant of gendered inequality in schooling and earnings. The paper aims to examine the effects of gender-neutral and gender-specific education subsidy policies on the gendered differences in schooling and earnings.Design/methodology/approachA three-sector full employment general equilibrium model is developed, where the amount of schooling of children is determined by the intertemporal utility maximizing behaviour of the parents over two periods.FindingsThe results indicate that higher gender-neutral education subsidy may raise the amount of schooling of boys more than girls and aggravate the schooling inequality in a society with traditional gender norms; the effect on earning inequality depends on the relative gendered returns to education and the marginal effects of the subsidy on relative schooling levels. However, gender-specific subsidy policies raise female schooling, thereby narrowing gender-based schooling and are likely to favourably affect the earning inequality.Originality/valueThe paper tries to analyse the linkage between education and labour market within a gender dimension. On the one hand, it tries to explain parental schooling decision due to gender-neutral and gender-specific education subsidies, and on the other, it examines the effects of these two subsidy policies on gendered schooling inequality and gender earnings inequality in a dynamic model.

Estimating the Growth Impact of Economic Transformation in Qatar

Abstract Qatar’s economic growth and improvements in living standards have been underpinned by a state-led, hydrocarbon-intensive growth model. More recently, Qatar has been undergoing an economic transformation toward a growth model that is more dynamic, knowledge-based, sustainable, and led by the private sector. It will be guided by the recently published Third National Development Strategy, which aims to achieve the National Vision 2030. This paper suggests key reforms to achieve this goal, quantifying their potential impact on the real economy using a semi-structural, general equilibrium model that includes Qatar. Model simulations suggest substantial benefits from labor market reforms, particularly those that would increase the participation of skilled expatriate workers. They also suggest large growth gains from reforms for the business environment, including those that improve access to finance.

From farms to tables: Quantifying the effect of emissions pricing on canadian food prices

AbstractWe examine the effect of emissions pricing on the cost of Canadian food. We describe emissions pricing policies relevant to the agriculture and food sectors and the differing design details of various provincial systems and the federal Greenhouse Gas Pollution Pricing Act. To quantify the potential effect of such policies, we use a detailed input‐output model of Canada's economy to estimate both the direct and indirect cost increases across sectors. We also explore how exemptions and policy design can mitigate what would otherwise be larger effects. In particular, imported inputs, generous exemptions for most direct emissions in primary agriculture, and special provisions for large industrial emitters all dampen the effect. Overall, we find that emissions pricing at $80 per tonne could potentially increase the cost of domestically produced food by approximately 0.8% on average. Combined with imported food that is not directly affected by emissions pricing, we find an average effect of approximately 0.5%. While we abstract from general equilibrium responses, our analysis suggests emissions pricing in Canada has only a modest effect on food costs.

Assessing the impact of carbon mitigation strategies on agricultural GHG emissions: insights from a dynamic CGE model analysis

The selection of effective carbon reduction strategies and the management of agricultural greenhouse gas (GHG) emissions are critical issues in climate change mitigation. Different climate actions can lead to varied pathways for agricultural GHG emissions. This study constructs a Computable General Equilibrium (CGE) model for Chinese agriculture to identify which measures can contribute to achieving established climate governance objectives, exploring potential net emission pathways for agricultural GHG. On this basis, we provide a rationale for selecting emission reduction measures. Our findings indicate that: (1) Carbon taxation is an indispensable climate action for achieving China’s “dual carbon” goals and net-zero emissions, necessitating combination with other mitigation strategies; (2) Carbon sequestration, non-agricultural carbon taxation, and CCUS measures can alter the net emission trajectory of agricultural GHG, and carbon sequestration shows the most significant impact; (3) Based on the ‘dual carbon’ or net-zero emission goals, China’s agricultural GHG emission pathway might exhibit a flat M-shaped characteristic, whereas intensifying carbon sequestration efforts could lead to an inverted V-shaped trajectory. Our results offer decision-making support for the formulation of GHG emission reduction measures in China.

Agentizing a General Equilibrium Model of Environmental Tax Reform

Agentizing a General Equilibrium Model of Environmental Tax Reform