Global Computable General Equilibrium Model Research Articles

European Economic impacts of cutting energy imports from Russia: A computable general equilibrium analysis

The recent economic sanctions against Russia can jeopardise the sustainability of the European Union’s (EU) energy supply. Despite the EU’s strong commitment to stringent abatement targets, fossil fuels still play a significant role in the EU energy policy. Furthermore, high dependency on Russian energy supplies underlines the vulnerability of the EU energy security. Using a global computable general equilibrium model, we prove that the current EU embargo on coal and oil imported from Russia will have adverse supply effects, substantially increasing energy prices and welfare costs for the EU resident. Although it reduces emissions, extending the embargo to include natural gas doubles this welfare cost. The use of coal is likely to increase, especially with respect to EU electricity generation, given the current constraints of additional import capacities from non-Russian producers. The impact on Russia once the EU extends the sanctions to natural gas is less substantial than on the EU. Russian welfare cost will increase less than 50%, indicating that extending the current restriction to boycott Russian gas is a costly policy option.

Economic integration and food security – The case of the AfCFTA

The study assesses potential effects of the African Continental Free Trade Area (AfCFTA) on agri-food sectors and food security in Africa. It employs the global Computable General Equilibrium model MAGNET in an ex ante analysis. The analysis has high regional and sectoral detail, representing the wide variety of African economies and trade policy strategies.The AfCFTA lifts 1.0 million people from risk of hunger while increasing national incomes. The rise in food prices offsets the increase in household income in a few regions. Food production increases in total, but several regions reduce production while increasing imports. Non-tariff measure reductions have higher impact than tariff cuts. A group of countries could experience adverse food security effects due to the AfCFTA.

Economy-wide impacts of road transport electrification in the EU

While electrification of road transport is a key component of decarbonisation, the implications for the broader economy and related jobs remain underexplored. We quantify these impacts in the EU in a global Computable General Equilibrium (CGE) model, combining techno-economic assumptions about electric vehicles with deployment scenarios derived by energy models. We augment input-output tables underlying the JRC-GEM-E3 model with an explicit representation of vehicle manufacturing and upgrade the modelling of vehicle purchase and operation. Our findings illustrate that greater road transport electrification reduces the overall costs of climate mitigation, primarily driven by lower fuel costs for electric vehicles and a faster decline of battery costs. Transport electrification alters supply-chains and leads to structural shifts in employment from traditional vehicle manufacturing towards battery production, electricity supply and related investments. Finally, we expand the set of labour market indicators to cover skills and occupations, to refine the socio-economic assessments of climate policy.

The Impact of Trade Barrier Reductions on Global Value Chains for Agricultural Products in China and Countries along the ‘Belt and Road’

AbstractThe Belt and Road Initiative (BRI) may potentially reduce trade barriers between China and countries along the Belt and Road (BR) route, affecting the positions in Global Value Chains (GVCs) of agricultural products of these countries. This study explores the BRI influence on the GVC positions using a global computable general equilibrium (CGE) model and focusing on China and the BR countries. The study finds that the reduction of tariff barriers and non-tariff barriers between countries along ‘the Belt and Road’ results in increased producer prices and volumes of almost all agricultural products exported from China, which improves the position of China in the GVCs of these agricultural products in our best estimate scenario. Countries along the BR route also benefit from the reduction in trade barriers, with improved positions in the GVCs of agricultural products in the best estimate scenario, especially those products that have comparative advantages in GVCs.

DEVELOPMENT OF LOW-CARBON POWER TECHNOLOGIES AND THE STABILITY OF INTERNATIONAL CLIMATE COOPERATION

This paper explores the effects of the technological development of key low-carbon power technologies (photovoltaic (PV), wind, and carbon capture and storage (CCS)) on the stability of global climate cooperation under several assumptions about climate-related damage. The methodology combines cooperative game theory with a global computable general equilibrium (CGE) model allowing us to endogenize testing of stability of the global coalition and to include macroeconomic effects. Global cooperation is found to be stable only under mean or pessimistic assumptions about the development of key low-carbon power technologies and when damage is severe. If the technological development is favorable or climate damage is not severe, the gains from global cooperation are not sufficient to compensate for mitigation costs, because a nonglobal coalition of willing countries can then achieve emission reductions close to the global optimum. Finally, our findings support establishing nonglobal ‘climate clubs’ to overcome the lack of global cooperation in international climate policy.

Economic gains from global cooperation in fulfilling climate pledges

Mitigation of CO2 emissions is a global public good that imposes different regional economic costs. We assess the distributional effects of cooperative versus non-cooperative CO2 markets to fulfil the Nationally Determined Contributions (NDCs), considering different CO2 permit allocation rules in cooperative markets. We employ a global computable general equilibrium model based on the GTAP-9 database and the add-on GTAP-Power database. Our results show the resulting winners and losers under different policy scenarios with different permit allocation rules. We see that in 2030, we can obtain gains as high as $106 billion from global cooperation in CO2 markets. A cooperative CO2 permit market with equal per capita allowances results in considerable monetary transfers from high per capita emission regions to low per capita emission regions. In per capita terms, these transfers are comparable to the Official Development Assistance (ODA) transfers. We also disaggregate the mitigation costs into direct and indirect shares. For the energy-exporting regions, the largest cost component is unambiguously the indirect mitigation costs.

Winners and losers in global supply chain trade: Embedding GSC in CGE

A major question in contemporary economic discussions is who wins and who loses from global supply chain (GSC) trade. In seeking an answer to this question, policy makers are not well-served by existing economic models. GSC models lack adequate representation of labour markets and other aspects of the economy outside the GSC sector. Global computable general equilibrium (CGE) models have an economy-wide perspective but lack essential GSC features. We integrate GSC with CGE. Results from the integrated model can differ sharply from standalone results. A stylized application of the integrated model shows that GSC trade can accelerate the transfer of labour in developing countries out of low-marginal-productivity agriculture into higher-marginal-productivity manufacturing. At the same time, GSC trade can leave high-income countries with a difficult structural-adjustment problem and little if any long-run gain.

The AfCFTA impact on agricultural and food trade: a value added perspective

AbstractThe African Continental Free Trade Area agreement will create the largest single market in the world in terms of the number of countries and people. We analyse the effects of regional trade liberalisation on production fragmentation and networks using a global computable general equilibrium model adapted to take into account the value-added structure of international trade. This permits the analysis of the impact of trade policies in the presence of global upstream and downstream linkages through a counterfactual analysis. The analysis goes beyond previous studies by focusing on member countries’ agricultural and food integration in regional and global value chains through backward and forward linkages. Our simulation results suggest that the agreement could have a significant impact on trade patterns in terms of value-added structure and extra- or intra-regional destinations. The reduction in trade costs within the region has a higher incidence on agriculture and food backward intra-regional integration than on forward participation, but this pattern varies substantially across countries. We find that the continental agreement translates in more widely spread benefits across sectors if we consider the income generated within each sector (value added) rather than simply accounting for gross exports.

Combining economic recovery with climate change mitigation: A global evaluation of financial instruments

Although some countries are gradually returning to production and life, the COVID-19 pandemic continues to affect the world, further motivating recovery policies. Using a global computable general equilibrium (CGE) model, this study evaluates the environmental and economic impacts of COVID-19 on the world, both today and in the longer term. This study explores the post-pandemic impacts conditional on varied fiscal policies (including forgone revenue and additional spending) and their combination with a carbon tax. This study finds that the pandemic shocks in 2020 slowed regional economies worldwide, and a continued pandemic in 2021 will further stymie economic activity. Among the government’s recovery policies, indirect tax reduction has the best positive stimulus to regional economies; however, it is not conducive to low-carbon energy development and will also lead to an increase in CO2 and pollutant emissions. A post-pandemic green recovery plan could prioritize replacing indirect production taxes with taxes on GHG emissions, which would both improve economic turnover metrics and reduce environmental emissions in 2021. In the long run, this tax shift will not only minimize the economic damage to the global economy but also help governments around the world to get back on track in meeting the goals of the Paris Agreement.

Distributional impacts of carbon pricing policies under the Paris Agreement: Inter and intra-regional perspectives

In this paper, we analyze the poverty and distributional impacts of different carbon pricing mechanisms consistent with reaching the Paris Agreement targets. We link a global recursive dynamic computable general equilibrium model ENVISAGE with the GIDD microsimulation model and explore three levels of mitigation effort and five carbon pricing options (trade coalitions). Results suggest that while there is a higher incidence of poverty in all scenarios, mainly driven by lower economic growth, Nationally Determined Contribution (NDC) policies result in a progressive income distribution at the global level. Such progressivity is caused not only by lower relative prices of food versus non-food commodities, but also by a general decline in the skill wage premia.Achievement of the NDC targets without regional cooperation results in 0.45% increase in the number of people living in extreme poverty (below PPP$1.90/day) by 2030, while a more ambitious 2 °C-consistent target increases this number to 1.25%. Global cooperation significantly eases the burden on poor, reducing the poverty headcount by almost three times in the case of 2 °C-consistent target and bringing it to the baseline scenario level in the case of NDC target. The global Gini coefficient falls between 0.01 and 0.04 percentage points, while reduction in the Theil index is between 0.01 and 0.11 percentage points. Results also indicate that the reductions in inequality come mainly from a reduction in income from top earners, as the results are much more sensitive to the NDC policies closer to the top of the income distribution.

The increasing global environmental consequences of a weakening US-China crop trade relationship.

The consideration of tariffs on China's imports of US agricultural products has focused on economic impacts, while the environmental consequences have received less attention. Here we use a global computable general equilibrium model to evaluate long-term crop portfolio changes induced by China's retaliatory agricultural tariffs and thereby assess the environmental stresses imposed by different crop production portfolios based on region-specific and crop-specific databases. We show that China's tariffs cause unintended increases in nitrogen and phosphorus pollution and blue water extraction in the United States as farmers shift from soybeans to more pollution-causing crops. If diverted to Brazil, China's soybean demands would reduce Brazilian stresses of nitrogen pollution and water use through crop portfolio changes, but may add additional pressures on phosphorus pollution and deforestation. On a global scale, trade policies could help to reduce nutrient pollution and water source depletion by promoting crop production where it is most efficient in terms of nutrient and water use.

The impact of the Sino-US trade conflict on global shipping carbon emissions

The trade conflict between China and the United States will have a complex and far-reaching impact on international trade patterns. The significant change in regional trade will not only impact the global transportation industry, but also have an important impact on international shipping carbon emissions. However, there are few studies that explore this issue. Based on the global multi-regional computable general equilibrium model, this study sets up three scenarios according to the development trend of the Sino–US trade conflict to measure the changes in global shipping carbon emissions under different trade conflict scenarios. The results show that, compared with the no trade conflict scenario, the tariff increase will reduce international trade by 0.329%–0.345%, but global international shipping carbon emissions will rebound by 0.25%–0.33%. The main reason for this result is that the trade conflict caused notable trade diversion. The direct trade between China and the United States became indirect trade that must be undertaken by “third countries”, which will increase the global freight mileage by 0.23%–0.34%. This paper finds that Sino–US trade conflict will not only hinder international trade volume, but also increase the transportation distance of international trade of goods, which will have a negative impact on the control of carbon emissions from international shipping. This study will help to clarify the impact of the Sino–US trade conflict on international maritime carbon emissions and provide a new perspective to comprehensively identify the economic and environmental impacts of trade conflict.

How Do International Conflicts Impact China’s Energy Security and Economic Growth? A Case Study of the US Economic Sanctions on Iran

International conflicts cause global energy price fluctuations and supply disruptions, which can threaten energy security and economic growth in energy-importing countries, including China. However, the implications and impact mechanisms of international conflicts on the energy security and economy of oil-importing countries have been poorly explored. Using US economic sanctions on Iran as a case, a global energy-extended computable general equilibrium model, GTAP-E, is employed to assess the impacts of international conflicts on China’s energy production, trade and supply, sectoral outputs, and economic growth. The results indicate that the USA–Iran tension would threaten China’s energy security, mainly due to the instability of the energy supply and the consequent upsurge of energy prices. However, if increased oil exports from other Persian Gulf countries compensate for the global oil supply shortages, China’s energy supply would be generally assured. Moreover, because of the close energy cooperation links between Iran and China, the sanctions could decrease the Chinese outputs of non-energy sectors and economic growth. Nevertheless, compared with sole-sanction situations, the results from a possible USA–Iran tension escalation, going as far as Iran’s closure of the Hormuz Strait, could pose a more serious risk to China’s energy security and economic growth.

Socio-Economic Impact of Covid-19 Pandemic and Strategies for Reviving Nigeria’s Economy

This study provides multi-disciplinary assessment of coronavirus pandemic transmission in Nigeria, magnitude of confirmed cases, recoveries, deaths, and inventory of infected person with recovery lags. It applied the statistical outcomes in predicting spilling over to subsequent periods. It identifies economic sectors worst hit by COVID-19 triggered recession, simulate the estimates of potential fiscal and other macroeconomic impact of the pandemic in the country in short run alongside synthesis of restoration and sustainability strategies. Secondary data relating to coronavirus infection cases, spreads, recoveries and fatalities were assessed, using the susceptible-infected-recovered” (SIR) model in absence of mass testing and probable cessation from health crisis management. It identified economic sectors/activities being devastated by COVID-19 induced recession, provides interim estimates adverse impact based on economic peak and down-turn cycle method. The study also measured the magnitude of macroeconomic shocks in Nigeria’s economy using a standard global computable general equilibrium model and exploration of sustainability strategies based on synthesis of extant reports were employed. These data-sets were obtained from the Nigerian sources and partly from global sources. Furthermore, it utilized trend analysis derived from empirical data of extant daily confirmed cases, discharges and hospitalized person together with tentative projection of additional confirmed cases as from July–September, 2020. Results revealed that confirmed cases in Nigeria will increase steadily from 25694 (in June) to around 74825 by the end September and expected to reach 121000 by end of year 2020. This suggests that the pandemic is likely to persist up to the second quarter of 2021. Education, transport (aviation), hospitality, tourism and sports businesses; trade (informal sector) in the services sector; petroleum exploration in mining sub-sector are most severely contracting activities industries in the economy. Given the prevailing intensity of recession, the result indicates that a reduction of about 5-to-7% in GDP will be recorded in 2020. Result of variance analysis of fiscal budget estimates indicates adverse increase of -2% or more in overall fiscal deficit balances during the periods, which may aggravate debt burden with decline of about -5.7 percent and up to -7 percent in nominal GDP. Health, education, agriculture, petroleum exploration; petroleum refining and petrochemical industries, manufacturing (particularly pharmaceuticals), energy and power generation should be given priority in the sustainability programme.

Economic Transformation and Sustainable Development through Multilateral Free Trade Agreements

For sustainable economic development, a continuous and successful economic transformation is critical, and supporting economic transformation requires a better understanding of the close interaction between technology and skill at the micro- and macro-levels. The technology-skill links should especially be important in today’s globalized world. This paper develops a large-scale global Computable General Equilibrium (CGE) model by incorporating recent theoretical advances in international trade: Heterogeneous workers endogenously sort into different technologies based on their comparative advantage, and aggregate productivity is determined by skill-technology assignment in equilibrium. We then calibrate our model to a real-world data set, and investigate how multilateral free trade agreements affect individual member states, as well as outside countries and regions in the case of the Regional Comprehensive Economic Partnership (RCEP). Overall, the results show considerable real productivity gains and economic transformation effects, due to technology-upgrading mechanisms.

Distributional Impacts of Carbon Pricing Policies Under Paris Agreement: Inter and Intra-Regional Perspectives

While bringing multiple benefits for the environment, achievement of the stringent global greenhouse gas emissions reduction target, like the one outlined in the Paris Climate Agreement, is associated with significant implementation costs and could impact different dimensions of human well-being, including welfare, poverty and distributional aspects. In this paper, we analyze the poverty and distributional impacts of different carbon pricing mechanisms consistent with reaching the Paris Agreement targets. We link a global recursive dynamic computable general equilibrium model ENVISAGE with the GIDD microsimulation model and explore three levels of mitigation effort and five carbon pricing options (trade coalitions). Results suggest that while there is a higher incidence of poverty in all scenarios, mainly driven by lower economic growth, Nationally Determined Contribution (NDC) policies result in progressive income distribution at the global level. Such progressivity is caused not only by lower relative prices of food versus non-food commodities, but also by a general decline in skill wage premia. Achievement of the NDC targets without regional cooperation results in 0.45% increase in the number of people living in extreme poverty (below PPP$1.90/day) by 2030, while a more ambitious 2oC-consistent target increases this number to 1.25%. Global cooperation significantly eases the burden on poor, reducing the poverty headcount (additional number of people leaving in extreme poverty) by almost three times in the case of 2oC-consistent target and bringing it to the baseline scenario level in the case of NDC target. The global Gini coefficient falls between 0.01 and 0.04 percentage points depending on the mitigation effort and collaboration mode, while reduction in the Theil index is between 0.01 and 0.11 percentage points. Results also indicate that the reductions in inequality come mainly from reduction in income from top earners, as the results are much more sensitive to the NDC policies closer to the top of the income distribution.

Systemic Risk in Global Agricultural Markets and Trade Liberalization under Climate Change: Synchronized Crop-Yield Change and Agricultural Price Volatility

Climate change will increase simultaneous crop failures or too abundant harvests, creating global synchronized yield change (SYC), and may decrease stability in the portfolio of food supply sources in agricultural trade. This study evaluated the influence of SYC on the global agricultural market and trade liberalization. The analysis employed a global computable general equilibrium model combined with crop models of four major grains (i.e., rice, wheat, maize, and soybeans), based on predictions of five global climate models. Simulation results show that (1) the SYC structure was statistically robust among countries and four crops, and will be enhanced by climate change, (2) such synchronicity increased the agricultural price volatility and lowered social welfare levels more than expected in the random disturbance (non-SYC) case, and (3) trade liberalization benefited both food-importing and exporting regions, but such effects were degraded by SYC. These outcomes were due to synchronicity in crop-yield change and its ranges enhanced by future climate change. Thus, SYC is a cause of systemic risk to food security and must be considered in designing agricultural trade policies and insurance systems.

An assessment of import tariff costs for Italian exporting firms

Since production and trade are increasingly organized within global value chains (GVCs), assessing who effectively pays the cost of protection is not straightforward and since productive processes are internationally fragmented, quantifying the effects of trade policy requires an enhanced analytical framework that takes international input–output linkages into account to assess the implications trade costs have on competitiveness at national and sector levels. This paper defines a new synthetic measure of trade protection based on the value added in trade, capturing the effects that the tariff structure has on exporting firms that rely on imported intermediate inputs. The index, defined in a general equilibrium framework, provides a theoretically sound protection measurement in the context of GVCs. We assess trade protection by computing protection indexes at the bilateral level on both gross imports and imports to exports using the Global Trade Analysis Project computable general equilibrium model. These indexes are used to investigate the relationship between the European Union tariffs and integration of the Italian GVCs. In the case of Italy, imports to exports are overall less protected than gross imports with significant differences at the sector level. Despite the low levels of nominal protection, industrial sectors play a central role in explaining our results. EU tariffs mostly affect Italian exporting firms in the case of chemical products, wearing apparel and leather products.

Border effect of agricultural trade between China and the Belt and Road countries: a computable general equilibrium model analysis

In this paper, we constructed a global trade computable general equilibrium model using the input-output table data in 2002, 2007, 2010, and 2015 to measure the border effect of the bilateral trade of agricultural products between China and the Belt and Road (B&R) countries, and designed a simulation analysis under different scenarios for the impact of the B&R initiative on China’s agricultural trade. We discovered that: (1) The border effect of agricultural product trade between China and the B&R countries decreased by 20.9% in 2015 compared with that in 2010, which means that the B&R initiative to some extent reduced the trade barriers and promoted the bilateral agricultural trade between China and the B&R countries. (2) There are different changes in border effect between China’s domestic regions and between unilateral and bilateral border, the decline of border effect in China’s costal area is larger than that in inland area, and the decline in import border is larger than that in export border. (3) With the improvement of the B&R framework and the implementation of supporting policies, the decline in trade costs and in local agricultural product preference as well as the agricultural technology progress will further reduce the border effect. China’s domestic regional trade gap will gradually narrow, the bilateral agricultural trade will be highly active, and the continuous growth of agricultural trade will emerge between China and the B&R countries.

Coronavirus (COVID-19) Pandemic, Economic Consequences and Strategies for Ameliorting Macroeconomic Shocks in Nigeria’s Economy

This study provides multi-disciplinary assessment of the coronavirus pandemic transmission in Nigeria, magnitude of COVID-19 confirmed cases, recovery, deaths, and inventory of infected person with recovery lags. It applied the statistical outcomes in predicting spilling over to subsequent periods. It identifies economic sectors worst hit by COVID-19 triggered recession, simulate the estimates of potential fiscal and other macroeconomic impact of the pandemic in the country in short run alongside synthesis of restoration and sustainability strategies. Secondary data relating to coronavirus infection cases, spreads, recoveries and fatalities were assessed, using the susceptible-infected-recovered” (SIR) model in absence of mass testing and probable cessation from health crisis management. It identified economic sectors/activities being devastated by COVID-19 induced recession, provides interim estimates adverse impact based on economic peak and down-turn cycle method. The study also measured the magnitude of macroeconomic shocks in Nigeria’s economy using a standard global computable general equilibrium model and exploration of sustainability strategies based on synthesis of extant reports were employed. These data-sets were obtained from the Nigerian sources and partly from global sources. Furthermore, it utilized trend analysis derived from on empirical data of extant daily confirmed cases, discharges and hospitalized person together with tentative projection of additional confirmed cases as from July–September, 2020. Results revealed that confirmed cases in Nigeria will increase steadily from 25694 (in June) to around 74825 by the end September and expected to reach 121000 by end of year 2020. This suggests that the pandemic is likely to persist up to the second quarter of 2021. Education, transport (aviation), hospitality, tourism and sports businesses; trade (informal sector) in the services sector; petroleum exploration in mining sub-sector are most severely contracting activities industries in the economy. Given the prevailing intensity of recession, the result indicates that a reduction of about 5-to-7% in GDP will be recorded in 2020. Result of variance analysis of fiscal budget estimates indicates adverse increase of -2% in overall fiscal deficit balances during the periods, which may aggravate debt burden with decline of about -5.7 percent and up to -7 percent in nominal GDP. Health, education, agriculture, petroleum exploration; petroleum refining and petrochemical industries, manufacturing (particularly pharmaceuticals), energy and power generation should be given priority in the sustainability programme.