Global Computable General Equilibrium Research Articles

US international trade policy: Scenarios of protectionism and trade wars

US international trade policy under both the Trump and Biden administrations has been increasingly protectionist. This paper considers two policy scenarios under active discussion: (1) an across-the-board increase in all US tariffs by 10 percentage points, and (2) a severe escalation of the US trade war with China. The scenarios are analyzed using a multi-country computable general equilibrium (CGE) simulation model of the global economy. Trade wars or policy regimes of widespread protection will increase tariffs in many sectors simultaneously and include both final goods and intermediate inputs. The impacts are complex, with a web of direct and indirect forces coming into play across domestic and international markets. The global CGE model captures these mechanisms, including both short and long-run effects, with and without retaliation by partner countries. In a world economy where the US accounts for only 10 % of global trade and potentially rival trade bloc have emerged in Europe and E&SE Asia, the US is no longer hegemonic in global markets. We find that across-the-board tariffs do not protect manufacturing jobs because the cost of imported intermediate goods increases, raising costs in manufacturing production. The US trade war with China leads to a dramatic fall in bilateral trade. Other countries expand their trade to China and the US with the exception of closely linked partners (e.g. Canada and Mexico and all countries in E&SE Asia). We find that the world economy can adjust to US trade wars, diverting trade around the US.

Regional Comprehensive Economic Partnership Can Boost Value-Added Trade in Food and Non-Food Sectors in Asia-Pacific Economies.

This study examines the effects of the Regional Comprehensive Economic Partnership (RCEP) on the value-added trade of food and non-food sectors. This study uses a global computable general equilibrium (CGE) model coupled with an extension module for the origin decomposition of value-added flows embodied in gross trade. The results suggest that by cutting down tariff and non-tariff barriers, the RCEP would significantly stimulate the economies of and gross trade among Asia-Pacific countries involved in the agreement. The potential benefits of the RCEP will be overestimated if we ignore the origin of value added and measure the benefits by gross exports. The domestic components of bilateral value-added flows between RCEP members would increase greatly, indicating an increasingly integrated value chain between RCEP members. Import taxes and non-tariff barriers for processed food, textiles and clothes, and heavy manufacturing are relatively significant in the region, so the RCEP would significantly improve their value-added exports. The domestic component of value-added exports in agricultural products and processed food from RCEP members would be increased significantly, indicating that the closely integrated food value chain boosts the food economies of RCEP members.

Multiplier effect on reducing carbon emissions of joint demand and supply side measures in the hydrogen market

Hydrogen energy is critical in replacing fossil fuels and achieving net zero carbon emissions by 2050. Three measures can be implemented to promote hydrogen energy: reduce the cost of low-carbon hydrogen through technological improvements, increase the production capacity of low-carbon hydrogen by stimulating investment, and enhance hydrogen use as an energy carrier and in industrial processes by demand-side policies. This article examines how effective these measures are, if successfully implemented, in boosting the hydrogen market and reducing global economy-wide carbon emissions using a global computable general equilibrium model. The results show that all the measures increase the production and use of low-carbon hydrogen, whether implemented alone or jointly. Notably, the emissions reduced by joint implementation of all the measures in 2050 become 2.5 times the sum of emissions reduced by individual implementation, indicating a considerable multiplier effect. This suggests supply and demand side policies be implemented jointly to maximize their impact on reducing emissions.

Impacts of trade facilitation on greenhouse gas emissions in the Belt and Road Initiative countries

The Belt and Road Initiative (BRI) trade facilitation could generate both economic and environmental impacts. Nevertheless, the resulting impacts on greenhouse gas (GHG) emissions remain unclear. Here we apply a global computable general equilibrium model to simulate the economic changes induced by BRI trade facilitation and thereby assess the GHG emissions burdens within China and the main economic corridors. We show that trade facilitation results in economic improvement at the expense of emissions for most BRI countries. Yet economic growth in these countries has outstripped emissions growth. Especially for countries within the New Eurasian Land Bridge (ELB), most of them even have achieved decoupling of economic growth from emissions under trade facilitation, which is mainly benefited from the decrease of non-CO2 GHG emissions. We stress that non-CO2 GHGs mitigation in more developing regions is essential to achieve an economic-environmental win-win state, in the context of future global trade liberalization.

Could the EU carbon border adjustment mechanism promote climate mitigation? An economy-wide analysis

Due to concerns about carbon leakage and sectoral competitiveness, the European Union (EU) proposed implementing the carbon border adjustment mechanism (CBAM). The effectiveness and potential negative consequences of CBAM have aroused extensive discussion. From the perspective of the economy-wide analysis, this study uses a global computable general equilibrium model to explore the rationality of CBAM from the aspects of socioeconomic impact and the effects of promoting climate mitigation. Furthermore, the potential alternative mechanism of CBAM is proposed. The results show that CBAM can reduce the EU's gross domestic product (GDP) loss; however, the GDP loss in all other regions increases. Moreover, CBAM raises household welfare losses in most regions, including the EU. Second, although CBAM can reduce the marginal abatement cost in eight regions, it comes at the cost of greater economic losses. Furthermore, the economic and household welfare cost of raising emissions reduction targets in regions like the USA and Japan is substantially higher than the impact of passively accepting the CBAM; therefore, CBAM's ability to drive ambitious emission reduction initiatives may be limited. Finally, for the potential alternative mechanism, from the perspective of reducing economic cost and household welfare losses, the EU could implement domestic tax cuts in the short-term and promote global unified carbon pricing in the long-term.

Peatland restoration in Germany: A dynamic general equilibrium analysis

Drained peatland currently contributes 7.5% of Germany's total national greenhouse gas emissions. The National Peatland Protection Strategy adopted by the German government in 2022 recognizes that these emissions need to be reduced significantly to meet the country's climate change mitigation commitments. The present study employs a global dynamic computable general equilibrium model to assess the economic and greenhouse gas emission impacts of alternative agriculture-focused peatland rewetting scenarios for Germany up to 2030. In contrast to partial-analytic approaches, the global general equilibrium approach allows to take consistent account of economic ripple-on effects and carbon leakage effects triggered by peatland rewetting. The results suggest that in the medium term towards 2030 a reduction in annual emissions from agricultural peatland use by up to 45% are attainable at marginal private abatement costs between 27 and 61 Euro/tCO2e. Carbon leakage effects due to induced indirect land use change in Germany and the rest of the European Union reduce the global net emission reduction impact by 0.7 to 1.0% of the direct emission reduction. The effects on food prices remain small in all scenarios. In conclusion, a sizable reduction of Germany's land-use-related emissions is achievable at a low macroeconomic cost by moving beyond the moderate ambitions of the National Peatland Restoration Strategy.

Azerbaijan: pathways for decarbonization in a global context

ABSTRACT As economies around the world are increasing their mitigation ambitions, Azerbaijan’s lingering dependency on fossil fuel exports threatens its medium – and long-term economic development prospects. Global decarbonization is expected to directly impact the country’s resource rents through lower fossil fuel demand and prices. In this regard, it is crucial to understand the potential implications of the global mitigation efforts on the economy of Azerbaijan and evaluate the domestic mitigation policies. To address this gap in the literature, we use a global dynamic computable general equilibrium model and explore a set of forward-looking climate policy scenarios till 2060. Our results suggest that while being adversely impacted by decarbonization efforts in countries around the world, it is in Azerbaijan’s self-interest to implement domestic mitigation policies. With proper sequencing and design of such policies, including a combination of fossil-fuel subsidies reform, the introduction of carbon prices post-2030 and recycling of the additionally collected revenue via reduced factor taxes, the country could achieve NDC targets, boost economic growth and increase economic diversification. More ambitious mitigation efforts, consistent with reaching net-zero emissions by 2060 would result in substantial health co-benefits from improved air quality, which could almost fully outweigh the direct economic costs of such mitigation.

Impacts of Global Warming on Regional Energy and Economy: Uneven consequences arising from global warming-induced heating and cooling demand of households

The impacts of global warming vary across regions. This paper studies the distributional implications of global warming impacts on household energy use for heating and cooling and the induced macroeconomic responses under different scenarios. Our research updates the direct impact of global warming on household energy demand in 140 regions worldwide by utilizing existing estimations of damage functions related to temperature changes. Subsequently, the updated direct impact is used in a global static computable general equilibrium (CGE) model to evaluate the macroeconomic responses. We find that at the global level, the market effects cause a reduction in the direct impact on the demand for oil and gas, while that for electricity displays a positive but moderate growth. Whereas the regional effects vary across countries and lead to changes in both directions, in which the autonomous adaptation embodied in the global market plays a vital role. Furthermore, we find strong inequality in the socioeconomic responses to global warming across regions. Notably, low-income countries are most strongly affected by increased primary energy use and decreased gross domestic product (GDP). Disparities in the impacts on carbon-based energy sources yield a near-perfect inequality as per the adjusted Gini index for CO2 emission changes, which potentially intensify the distributional consequences of global climate change.

Building a baseline to better integrate air passenger and air freight transport into a global Computable General Equilibrium (CGE) model

The Covid-19 pandemic has had opposite effects on demand for air passenger and air cargo transport and on the way these two sectors interact with other sectors of the economy. However, macroeconomic models generally represent aviation as a single sector, limiting the ability to assess those interactions. In this study, we split the air transport sector into two sectors (passenger and freight) in GTAP’s Multiregional Input–Output table. We assess the sectors’ response to a carbon tax by performing a sensitivity analysis. Our results highlight the environmental benefits from the Covid-19 pandemic will only be transitory unless policies and consumer demand rein in traffic growth in the aviation industry. Particular attention should be paid on leisure travel, due to its large share in the aviation industry and the potential steep rise in demand (87%) in the EU27 projected between 2015 and 2030.

The distributional effects of CO[formula omitted] pricing at home and at the border on German income groups

While climate policy studies are widespread, fully fledged computable general equilibrium (CGE) model analyses of distributional policy effects are challenging because the required data and approaches are not directly available. To ease such distributional analyses, we provide a step-by-step “recipe” for disaggregating a country-specific representative consumer of a CGE model. Using this “recipe”, we implement German household survey data in a global CGE model by distinguishing three income groups of the German representative consumer. We find that the negative consumption effect of CO2 pricing is highest for the low-income group, whereas the negative income effect is highest for the high-income group and exceeds the consumption effect. The low-income group benefits most from (per capita-based redistribution of) carbon pricing revenues and receives social transfers such that poor households can be better off with such climate policies than without them. CO2 pricing of imports at the (EU) border slightly strengthens these distributional effects and is mainly beneficial for the low-income group. The geographic extension of emissions trading within a “climate club” leads to substantial efficiency gains that are beneficial for Germany and the EU.

Synergies of CGE and IAM modelling for climate change implications on WEFE nexus in the Mediterranean

The Mediterranean Sea Basin (MSB) is experiencing increasing pressure on its natural resources due to climate change (CC) and demographic growth, posing challenges to water and food sustainability. In line with the United Nations Sustainable Development Goals and the Water-Energy-Food-Ecosystems (WEFE) nexus, this study projects shifts in welfare and food security under various climatic conditions. Agriculture, a sector that is highly vulnerable to climate variability, depends predominantly on rainfed croplands, which constitute 70-100% of agricultural land in most MSB countries. The remaining areas are irrigated by climate-dependent water bodies such as rivers and aquifers.A comprehensive analysis of the WEFE nexus is essential for a coherent examination of climate policy and future pathways for the economy and the natural environment. Using a dual-modeling approach, this research assesses the impacts of alternative water sources and irrigated agriculture within the MSB amidst uncertainties of CC-driven extreme events. A global computable general equilibrium (CGE) model, based on the GTAP framework, was used to examine inter-sectoral and inter-regional impacts. In tandem, the Integrated Assessment Model (IAM) based on the RICE-99 framework quantifies the uncertainties related to future extreme climatic events. This synergistic approach provides a comprehensive assessment of CC impacts, integrating adaptation strategies for alternative water sources and irrigated agriculture, as well as mitigation strategies to reduce greenhouse gas emissions from energy production.The focus on cross-sectoral and multi-scale management of water, ecosystems, and food in the MSB was embedded into the economic models - CGE GTAP-AW and IAM RICE-MED, to analyze the impacts of CC adaptation and mitigation strategies on the WEFE nexus. The results indicate a reduced impact of CC on food production, and provide a comprehensive overview of potential adaptation and mitigation measures to reduce food security risks in the MSB. These findings are crucial for policymakers to promote sustainable water and agricultural practices in the face of a changing climate.

Land for fish: Quantifying the connection between the aquaculture sector and agricultural markets

This study employs a global Computable General Equilibrium (CGE) model to quantify the effects of aquaculture production on agricultural markets, food prices and land use. We conduct a scenario analysis simulating, first, the fish sector developments expected by FAO; second, a rebuilding of sustainable wild fish stocks to achieve SDG 14; and third, a stronger expansion in aquaculture production with varying fishmeal supply. The results show direct effects of aquaculture production and limited fishmeal supply on agricultural production, land use, and food prices. Substituting fishmeal with plant-based feed when rebuilding sustainable fish stocks has lower effects on agricultural markets than growth in aquaculture production comparable to the first decade of this century. In addition, expanding aquaculture production increases prices for capture fish via fishmeal demand, instead of reducing capture fish prices by substituting consumer demand. Finally, rebuilding sustainable fish stocks has significant adverse effects on food prices in marine fish dependent regions in the southern hemisphere, and these regions need support in the transition period until sustainable fish stocks are achieved. The results of this study illustrate the interconnectedness of SDG 14 (life below water), SDG 15 (life on land) and SDG 2 (zero hunger).

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 Costs of Work Stoppages Caused by the COVID-19 Outbreak

AbstractThis study explores the economic costs of work stoppages resulting from the COVID-19 pandemic. It utilizes a global multiregional dynamic computable general equilibrium model and finds that the higher the proportion of labor compensation in the initial factor distribution, the greater the economic damage. Macroeconomic loss was characterized by a monotonically increasing function, with developed countries potentially incurring greater losses than developing countries. The COVID-19 pandemic had significant negative impacts on the global labor market, with a decline in labor productivity; the cumulative global economic loss in 2020–2022 surpassed $10.4 trillion, of which the EU, the USA, and China contributed 30.44%, 18.74%, and 15.44%, respectively. Countries’ anti-epidemic responses showed great heterogeneity, with South Korea and China’s actions showing the dual advantages of protecting the economy and lives, whereas the EU failed to protect either lives or the economy. This article argues that it was necessary to adopt strict quarantine measures to control the spread of the virus in the early stages of the epidemic, but with a drop in the case fatality rate and the introduction of vaccinations, strict control measures had to be removed to protect the economy.

A Nexus-Based Impact Assessment of Rapid Transitions of the Power Sector: The Case of Greece

Power system transformation can unleash wide-ranging effects across multiple, frequently interlinked dimensions such as the environment, economy, resource systems, and biodiversity. Consequently, assessing the multidimensional impacts of power system transformation, especially under rapid transitions, has become increasingly important. Nonetheless, there is a gap in the literature when it comes to applying such an analysis to a Mediterranean country facing structural socioeconomic challenges. This paper explores the potential multifaceted implications of rapidly decarbonizing the Greek power sector by 2035, focusing on the local-level consequences. The evaluation criteria encompass the cost-optimal power mix, power costs, land use, biomass utilization, GDP, and employment. In this effort, a technology-rich cost optimization model representing Greece’s power sector is linked to a global Computable General Equilibrium (CGE) macroeconomic model focusing on the Greek economy. The results indicate that a fast decarbonization of the Greek power sector could trigger positive socioeconomic consequences in the short- and medium-term (GDP: +1.70, employees: +59,000 in 2030), although it may induce negative long-term socioeconomic effects due to increased capital investment requirements. Additionally, the impact on land use may only be trivial, with the potential to decrease over time due to the de-escalation of biomass power generation, thereby reducing the risk of harming biodiversity.

Evaluating the economic impacts of Korea's NDC (nationally determined contributions) implementation via carbon pricing: A global multiregional computable general equilibrium analysis

Evaluating the economic impacts of Korea's NDC (nationally determined contributions) implementation via carbon pricing: A global multiregional computable general equilibrium analysis

Carbon pricing, carbon equity, and the RCEP framework

Trade liberalization in the Regional Comprehensive Economic Partnership (RCEP) not only contributes to regional economic growth but also leads to an increase in energy consumption and carbon emissions, which may exacerbate climate change risks. This study aims to explore the carbon pricing issue in the context of the RCEP framework. Additionally, for the sake of carbon equity, we introduce a differentiated carbon pricing scheme based on the cost fairness principle (CPCF), and the unified carbon pricing was used for a cost effectiveness analysis. The empirical analysis was conducted with a global multi-regional computable general equilibrium model. The results show that with the help of trade liberalization, the RCEP's GDP, energy consumption, and carbon emissions may increase by 0.639%, 1.962%, and 1.897%, respectively. The CPCF scheme, wherein developed countries assume the primary abatement burden, can be used to offset the increase in carbon emissions from trade liberalization while RCEP members maintain positive economic growth. The total abatement cost of the CPCF for carbon offsets in the RCEP can be reduced via unified carbon pricing, and the cost-saving effect approaches 24.24%. Unified carbon pricing may result in a carbon price of US $5.83 within the RCEP. As such, this study explores carbon pricing in the context of trade liberalization, and its findings will be valuable for the RCEP to achieve a win-win situation in terms of economic growth and climate change.

Cost reduction in low-carbon hydrogen: effective but insufficient to mitigate carbon emissions

Many countries have announced hydrogen promotion strategies to achieve net zero CO2 emissions around 2050. The cost of producing low-carbon (green and blue) hydrogen has been projected to fall considerably as production is scaled up, although more so for green hydrogen than for blue hydrogen. This article uses a global computable general equilibrium (CGE) model to explore whether the cost reduction of green and blue hydrogen production can mitigate the use of fossil fuels and related carbon emissions. The results show that cost reduction can raise low-carbon hydrogen consumption markedly in relative terms but marginally in absolute terms, resulting in a modest decrease in fossil fuel use and related carbon emissions. The cost reduction of low-carbon hydrogen slightly lowers the use of coal and gas but marginally increases the use of oil. If regional CO2 taxes are introduced the increase in green hydrogen production is considerably larger than in the case of low-carbon hydrogen cost reduction alone. However, if cost reduction in low-carbon hydrogen is introduced in addition to the CO2 tax the emissions from fossil fuels are only marginally reduced. Hence, synergy effects between the two measures on emissions are practically absent. A low-carbon hydrogen cost reduction alone is effective but insufficient to have a substantial climate impact. This study also calls for modeling development to capture special user preferences for low-carbon hydrogen related to climate mitigation when phasing in new energy carriers like hydrogen.

Insights from ASEAN-wide emissions trading schemes (ETSs): A general equilibrium assessment

ASEAN has not yet had any joint policy to constrain emission levels in the context of global efforts to tackle climate change and studies on such issues in the region are still scarce. This study employs a global computable general equilibrium (CGE) climate change policy-focused and electricity-detailed model to examine the impacts of emissions trading schemes (ETSs) on the ASEAN member economies. We found that Indonesia (a permit buyer) experiences much lower economic costs in the regional ETS scenarios rather than in its closed ETS market (−9% compared to −16% in real GDP). Malaysia, the Philippines, Singapore, Thailand and Vietnam act as permit sellers and experience higher economic costs in the regional ETS scenarios. It is because the balance on the current account, which is equal to the sum of the ordinary trade balance and net emissions trading revenue, is assumed to be fixed. Furthermore, the change in ratio of trade balance to regional income is also fixed. Such a setting indicates that if the net permit trading revenue is used to fully compensate for the trade balance, which is also maintained along with the changes in the regional income, permit selling countries will be worse off and vice versa if they move from their domestic ETS markets into a regional ETS market. Results also show that technological improvements can help reduce economic costs of the ETSs. In addition, renewable energy sources show strong expansions in their production levels, but they are still far from becoming dominant in ASEAN in order to significantly reduce economic costs of climate change policies. Households will also increase their demand for renewable energy in all ASEAN countries while lowering demand for fossil-based energy; however, this sector will still experience reductions in the overall electricity demand due to previous strong reliance on fossil-based energy.

How Do Productivity Benefits Spill Over Across Firms? Explorations in a Heterogeneous Firm Applied General Equilibrium Trade Model

Considerable diffusion of technology occurs via global trade and foreign direct investment (FDI) while firm heterogeneities cause considerable production heterogeneities. Hi-tech products and investment goods of differentiated varieties from emerging and developed economies are vehicles of superior technology. Given this stylized evidence, we analyse factors facilitating (or inhibiting) technological spillover to domestic firms in the host nations in a counterfactual scenario of a Trans-Pacific-Partnership (TPP) deal. By using a mixture interface of global computable general equi-librium (CGE) models of FDI (GTAP-FDI) and firm heterogeneity model of Global Trade Analysis Project, GTAP Heterogeneous (GTAP-HET), we calibrate impacts of trade and FDI spillovers on: (i) global production, (ii) trade patterns, (iii) welfare and (iv) regional productivity gains. Importance of regional trade agreements and policy for productivity spillovers is highlighted.