Global Computable General Equilibrium Research Articles

Impacts of export restructuring on national economy and CO2 emissions: A general equilibrium analysis for China

Sectoral adjustment for China’s export is vital to transform the Chinese economic structure so that high-quality development can be achieved. However, it is unknown to what extent export restructuring will affect the national economy and carbon dioxide (CO2) emissions. This study quantifies the potential economic and CO2 emission impacts of export restructuring under various export structure patterns and climate policies scenarios by using a global computable general equilibrium (CGE) model. Results show that China’s export restructuring will lead to 0.5–0.7% increase of Gross Domestic Production (GDP) and 2.0–2.2% increase of consumption in 2030 under all the non-climate policy scenarios, although the export volume will decrease. Meanwhile, CO2 emissions per GDP and total employment will both decrease under all the scenarios. At the sectoral level, the transport equipment sector will increase significantly in output, employment and CO2 emissions, while the textile sector will suffer substantial output and employment losses. Considering the application of climate policies, the USA pattern has the highest GDP and is the most carbon efficient among the three export structures. China’s export restructuring will also increase global GDP and consumption by around 0.2% and 0.4%, respectively. Such results suggest that encouraging export of service, transport equipment and reducing export of textile would be effective for China’s economic development and CO2 emission reduction.

Global adjustment to US disengagement from the world trading system

US trade policy in the Trump administration is protectionist, raising tariffs outside of WTO rules, threatening trade wars, withdrawing from existing trade agreements, and negotiating new bilateral trade deals rather than free trade agreements. The reaction of the rest of the world has been to support the WTO rules-based trading system and to pursue new and expanded regional trade agreements that do not include the US. The result may be US disengagement from the world trading system, with countries diverting trade around the US. We use a global computable general equilibrium (CGE) model to analyze changes in trade and production patterns for a variety of scenarios, including US trade wars. We find that adjustment to US disengagement is feasible—the changes in trade shares as countries divert trade are modest and achievable, with very little impact on the volume of global trade. If the US engages in trade wars with major partners, the best response for other trade partners is to sit out the trade war, accept higher US tariffs, and gain markets from global trade diversion around the US. Finally, because of indirect effects, widespread tariffs fail to benefit the protected sectors—a fallacy of composition in a protectionist trade policy.

“一带一路”基础设施发展对贸易成本冲击影响分析 (Economic Impact of Infrastructure Development on the 'Belt and Road' Countries）

Chinese Abstract: 在中国“一带一路”政策推进过程中，促进沿线国家基础设施建设是中国对外经济贸易政策重点。与此同时，因基础设施建设项目导致的贸易便利化程度改善也增进了中国与“一带一路”沿线国家的贸易往来和经济联系。本文将采用全球可计算一般均衡模型，模拟量化“一带一路”基础设施项目发展对沿线国家带来的经济影响。模型根据贸易便利化所带来的贸易时间成本减少转化为等值关税，并以此作为政策冲击量化依据设置不同的模拟情景。模拟结果表明，在贸易便利化程度优化前提下，包括中国在内的“一带一路”沿线国家经济都呈现正增长，但美国、日本、韩国则由于“一带一路”区域贸易战略的实施导致贸易转移，GDP出现不同程度下降。中国建造业、金属产品、钢铁、运输工具以及机械设备等与基础设施建设密切相关的行业部门产出也出现增长。 English Abstract: Infrastructure development is one of the strategic initiatives of China’s “Belt and Road” strategy. At the same time, the improvement of trade facilitation resulted from infrastructure development has also strengthened China’s trade and economic connections with “Belt and Road” countries. This article uses global computable general equilibrium (CGE) model to quantify the economic impact of infrastructure development on “Belt and Road” countries. The model transfers the “shock” of trade facilitation into the reduction of tariffs and sets two simulation scenarios. The result shows that the improvement of trade facilitation will lead to positive economic growth of the “Belt and Road” countries. Otherwise, GDP in the US, Japan and Korea will decrease because of the effect of trade transfer to “Belt and Countries” countries. In China, the output of infrastructure-related sectors, including construction, metal products, ferrous, vehicle and mechanical equipment, will increase.

Advanced technologies in energy-economy models for climate change assessment

Considerations regarding the roles of advanced technologies are crucial in energy-economic modeling, as these technologies, while usually not yet commercially viable, could substitute for fossil energy when favorable policies are in place. To improve the representation of the penetration of advanced technologies in energy-economic models, we present a formulation that is parameterized based on observations, while capturing elements of rent and real adjustment cost increases if high demand due to a large policy shock suddenly appears. The formulation is applied to a global computable general equilibrium model to explore the role of low-carbon alternatives in the electric power sector. While other modeling approaches often adopt specific constraints on expansion, our approach is based on the assumption and observation that these constraints are not absolute, and how fast advanced technologies will expand is endogenous to economic incentives. The policy simulations, while not intended to represent realistic price paths, are designed to illustrate the response of our technology diffusion approach under sudden increased demand for advanced technologies.

“一带一路”倡议对沿线国家经济影响研究——基于CGE模型分析 (Quantify the “Belt and Road” Initiative: Simulation on the Effect of Free Trade Policy)

Chinese Abstract: 本文应用全球可计算一般均衡模型（CGE）模拟“一带一路”沿线国家自由贸易政策所带来的经济影响。模拟结果发现，贸易自由化政策将对大部分沿线国家地区都将起到积极的推动作用，为当地经济带来一定活力。另一方面，由于出现贸易转移，美国以及欧洲非“一带一路”国家GDP则会因此而有所下降。行业数据表明，国内大部分行业产出增加，其中农产品出口大幅增长，也促进了国内产出增加。“一带一路”将对消化国内过剩产能起到积极作用，有利于实现经济结构优化升级。 English Abstract: This article uses the global computable general equilibrium model (CGE) to simulate the economic impacts of free trade policies on the countries along the “Belt and Road.” The result shows positive impacts of free trade policies on most countries along the “Belt and Road.” On the other hand, the US and some European countries will have a negative growth in their GDP due to the effect of trade transfer. Meanwhile, the results of the sectoral changes show that China’s agricultural sector will benefit most from the free trade scenario, which is demonstrated in a significant increase in its export and domestic output. This study suggests that the “Belt and Road” initiative will play a positive role in solving the problem of overcapacity in China’s domestic market, leading to an upgrade of the country’s economic structure.

Output and input bias effects of U.S. direct payments

AbstractThis study examines the national effect of U.S. direct payments on the extent and direction of biased technical change on U.S. agriculture. We also assess the economic significance of the estimated bias effects for economic policy modeling endeavors involving a reduction of domestic support payments. A two outputs (livestock and crops) and four inputs (labor, capital, land, and material) translog cost function was estimated from national time series (1948–2011) data. Results indicate that payments do not induce output‐biased technical change. We do find evidence of Hicksian bias that is land using and material input saving attributable to support payments. Global computable general equilibrium simulations suggest that price and output effects of discontinuing direct payments are 1/4 to 1/3 the size once the bias effects are incorporated.

Solution of one Global Problem by Approach of the Parametric Control Theory

Purpose of this paper is to show the potential of parametric control theory approach for the optimal solution of global problems (in the case of the food problem) and to substantiate the benefits of joint action to solve them on the basis of the developed global multi-country computable general equilibrium model (hereinafter - Model). The main results of the paper: Model verification (testing the possibility of its practical application) of the constructed and calibrated Model was successfully carried out by methods of parametric control theory: using sustainability assessments and assessments of sustainability indicators of smooth mappings, which are defined by the Model; as well as through conducting of series of counterfactual and forecast scenarios. Based on the Model a number of parametric control problems were solved in finding the optimal values of the instruments of public policy, which provide economic growth, reducing the gap in economic development between rich and poor regions, as well as increasing the production of agricultural products in the regions. Value consists in the developed Model and in showing approaches of parametric control theory on providing guidance to address global problems and to substantiate the benefits of joint action within the framework of their decision.

CGEBox: A Flexible, Modular and Extendable Framework for CGE Analysis in GAMS

We present CGEBox, an open-source and open-access framework for regional and global Computable General Equilibrium analysis realized in the General Algebraic Modeling System (GAMS) software. It flexibly depicts different nestings in production and factor supply, supports different functional forms for demand and choices in modeling international trade sectors (Armington, Armington plus Constant Elasticity of Transformation to distribute supply, Melitz and Krugman model). Either a regional household approach or separate accounts for government and potentially multiple private households with related closures are available. Supply and factor markets can be dis-aggregated to sub-regions and an implementation for GTAP-AEZ is available. We compare the layout of different well-known global and single country CGE models and discuss to what extent our flexible framework can replicate these layouts. In a structural sensitivity analysis, we compare major results under multi-lateral trade liberalization and endowment changes in one country for different model configurations. These reflect important structural differences between the chosen examples as well as additional features such as the Melitz model or endogenous capital stocks driven by investments in a comparative-static setting. We find relative limited differences in global and regional welfare between models based on the Armington assumption, even if other features differ such as closures, nestings or functional form in demand. A discussion on further joint development of such a framework leads to our summary and conclusions.

A Trade War between China and the United States and Its Likely Economic Impacts

This paper aims to quantify the likely economic effects of a trade war between China and the United States using a global computable general equilibrium (CGE) model. Three scenarios on a trade war between China and the United States are assumed in this study. Scenario 1 is a case in which the United States imposes 25% tariffs on $34 billion worth of Chinese goods and China reciprocates with 25% retaliatory tariffs on $34 billion worth of U.S. goods. Scenario 2 is a combination of Scenario 1 with a case in which the United States imposes 25% tariffs on additional $15 billion worth of Chinese goods and China responds with 25% retaliatory tariffs on additional $15 billion worth of U.S. goods. Scenario 3 is a combination of Scenario 2 with a case in which the United States imposes 10% tariffs on additional $200 billion worth of Chinese goods and China responds with 10% retaliatory tariffs on additional $140 billion worth of U.S. goods. The simulation results of the three scenarios are presented in terms of real GDP, equivalent variation (EV) as a measure of welfare, bilateral trade values, and trade balance of all countries in this study. Although the United States and China are predicted to run a trade surplus as a result of the trade war, they would have to pay for the trade war in terms of a lower economic growth and welfare. This is because the United States and China would not be able to use the lower-priced imported intermediate inputs from each other to produce exports.

The economy-wide effects of large-scale renewable electricity expansion in Europe: The role of integration costs

With the increasing share of renewables in electricity generation in Europe, implied economy-wide macroeconomic feedbacks and spill-over effects to other sectors and actors are of rising importance. We quantify the macroeconomic effects of a large-scale expansion of wind and photovoltaics (PV) in Europe, employing a global multi-regional multi-sectoral computable general equilibrium (CGE) model. We place special emphasis on electricity market integration costs, which have so far been neglected not only in most bottom-up technology comparisons, but also in macroeconomic studies. We find that the societal welfare effects of a large-scale expansion of wind and PV tend to be positive; however, when integration costs are taken into account, positive welfare effects are either much smaller or even become negative, depending very much on regional characteristics, such as the prevailing electricity mix, weighted average costs of capital (WACC) or capacity factors. We also show that macroeconomic feedback effects raise generation costs above what is anticipated from a bottom-up perspective, since the high capital intensities of renewable electricity generation technologies drive up economy-wide capital prices. This may imply that they are no longer competitive when installed at large-scales.

Mapping land use changes resulting from biofuel production and the effect of mitigation measures

AbstractMany of the sustainability concerns of bioenergy are related to direct or indirect land use change (LUC) resulting from bioenergy feedstock production. The environmental and socio‐economic impacts of LUC highly depend on the site‐specific biophysical and socio‐economic conditions. The objective of this study is to spatiotemporally assess the potential LUC dynamics resulting from an increased biofuel demand, the related greenhouse gas (GHG) emissions, and the potential effect of LUC mitigation measures. This assessment is demonstrated for LUC dynamics in Brazil towards 2030, considering an increase in the global demand for bioethanol as well as other agricultural commodities. The potential effects of three LUC mitigation measures (increased agricultural productivity, shift to second‐generation ethanol, and strict conservation policies) are evaluated by using a scenario approach. The novel modelling framework developed consists of the global Computable General Equilibrium model MAGNET, the spatiotemporal land use allocation model PLUC, and a GIS‐based carbon module. The modelling simulations illustrate where LUC as a result of an increased global ethanol demand (+26 × 109 L ethanol production in Brazil) is likely to occur. When no measures are taken, sugar cane production is projected to expand mostly at the expense of agricultural land which subsequently leads to the loss of natural vegetation (natural forest and grass and shrubland) in the Cerrado and Amazon. The related losses of above and below ground biomass and soil organic carbon result in the average emission of 26 g CO2‐eq/MJ bioethanol. All LUC mitigation measures show potential to reduce the loss of natural vegetation (18%–96%) as well as the LUC‐related GHG emissions (7%–60%). Although there are several uncertainties regarding the exact location and magnitude of LUC and related GHG emissions, this study shows that the implementation of LUC mitigation measures could have a substantial contribution to the reduction of LUC‐related emissions of bioethanol. However, an integrated approach targeting all land uses is required to obtain substantial and sustained LUC‐related GHG emission reductions in general.

Melitz Meets Milk: The Impact of Quota Abolition on EU Dairy Export Competitiveness

AbstractPrevious studies of EU milk quota abolition usually assume perfect competition (PC) in the dairy industry, despite evidence to the contrary. We use a global computable general equilibrium framework with an imperfectly competitive (IC) model variant, which offers insights into structural change (i.e. scale of output, firm entry/exit) and varietal diversity in the dairy industry. A heterogeneous‐firm Melitz extension enriches our analysis by endogenising the decision‐making process of domestic firms when exporting (or not) to specific foreign markets. The results from a PC CGE model variant are found to be consistent with respected market outlooks and official data. Furthermore, PC and IC variants generate broadly similar trends – a result corroborated in a previous study of Italian dairy firms. Our IC model prediction of a ‘shakeout’ among EU dairy firms is tentatively supported by actual observations. Finally, as an industry characterised by significant product innovation, increased extra‐EU export orientation by remaining dairy firms increases varietal choice, which further boosts EU dairy exports compared with the PC model variant.

Ageing Impact on the Economy and Emissions in China: A Global Computable General Equilibrium Analysis

Population ageing will accelerate in the coming decades in China. This ageing may have considerable impact on the economy and energy-related emissions, potentially affecting the global economy and global climate. By using a global computable general equilibrium (CGE) model we explore the impact caused by the population ageing through imposing the expected 2050 age structure on the economy and population size of 2011. Results show that gross domestic product (GDP) of China is reduced by nearly 10% as the ageing reduces consumption, labor supply and investments. However, increasing returns to capital abroad adds support to domestic demand. Ageing process in other countries can double ageing impacts on domestic consumption and encourage only a few production sectors in China. Global energy-related emissions is reduced by 700 Mt carbon dioxide (or about 70% of the 2011 emissions in Japan) due to the population ageing in China.

Agricultural Self-sufficiency and Market Stability: A Revenue-neutral Approach to Wheat Sector in Egypt

Food self-sufficiency has become a high-priority policy agenda for developing governments in conjunction with the food price volatility in recent years. Even though a food autarky has been long regarded as one of the most potent strategies to achieve national food security, the effectiveness of the policy has not been investigated using a quantitative simulation model. In this paper, a stochastic global computable general equilibrium (CGE) model to analyze the benefits of a wheat self-sufficiency project in Egypt is constructed. The findings suggest that the policy alleviates the volatility of household welfare and the consumer price of wheat in Egypt, and substantially enhances the resilience of welfare against an export ban on wheat by Russia.

The Opportunity Cost of the U.S. Withdrawal from the TPP: A CGE Approach

The objective of this paper is to quantify the opportunity cost of the U.S. withdrawal from the Trans-Pacific Partnership (TPP) trade deal signed by Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnamy comparing the likely economic effects of the TPP with those of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) without the United States, for which a global computable general equilibrium model is used. The opportunity costs of the U.S. withdrawal from the TPP for not only the United States and the CPTPP 11 members but non-members of the TPP are measured in terms of real GDP, equivalent variation (EV) as a measure of welfare, export and import values, and trade balance. In particular, the simulation results reveal that the opportunity costs that the United States has to pay for its withdrawal from the TPP would be a loss of real GDP of 0.76% and a loss of welfare of $107 billion,which is supported by a decrease in its total exports of 8.43% and a decrease in its total imports of 6.31%.

Global economic–biophysical assessment of midterm scenarios for agricultural markets—biofuel policies, dietary patterns, cropland expansion, and productivity growth

Land-use decisions are made at the local level. They are influenced both by local factors and by global drivers and trends. These will most likely change over time e.g. due to political shocks, market developments or climate change. Hence, their influence should be taken into account when analysing and projecting local land-use decisions. We provide a set of mid-term scenarios of global drivers (until 2030) for use in regional and local studies on agriculture and land-use. In a participatory process, four important drivers are identified by experts from globally distributed regional studies: biofuel policies, increase in preferences for meat and dairy products in Asia, cropland expansion into uncultivated areas, and changes in agricultural productivity growth. Their impact on possible future developments of global and regional agricultural markets are analysed with a modelling framework consisting of a global computable general equilibrium model and a crop growth model. The business as usual (BAU) scenario causes production and prices of crops to rise over time. It also leads to a conversion of pasture land to cropland. Under different scenarios, global price changes range between −42 and +4% in 2030 compared to the BAU. An abolishment of biofuel targets does not significantly improve food security while an increased agricultural productivity and cropland expansion have a stronger impact on changes in food production and prices.

Economic implications of the Comprehensive and Progressive Agreement for\xa0Trans-Pacific Partnership (CPTPP) on Pakistan: a CGE approach

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is one of the recently negotiated multilateral free trade agreements which aims to establish a free trade agreement between 11 economies (after US exit) on both sides of the Pacific. The formation and implementation of this proposed partnership is a valid threat for other economies, particularly for Pakistan. Pakistan will likely to suffer from this agreement due to trade diversion of textile and apparels in favor of the CPTPP members. The reason can be extended in terms of the likely ‘yarn forward rule,’ according to which, it is obligatory for the CPTPP member economies to import all the components of manufactured products from other CPTPP member economies. So, the implementation of the CPTPP will have an impact on global supply chain of textile and apparels. With this backdrop, this study evaluates the likely impacts of the CPTPP on the regional trade flows and other macroeconomic aggregates of Pakistan using a global computable general equilibrium model. The economy-wide results show the proposed CPTPP will have a negative impact on Pakistan’s real GDP, sectoral exports and imports and at household level. However, if Pakistan joins CPTPP, there is an overall positive impact on Pakistan’s economy. Thus, keeping in view Pakistan’s ideal geographical and strategic location and its potential to be a transit economy with a junction of south Asia, west Asia and central Asia, this study suggests that Pakistan’s proposed entry to CPTPP will not only yield a wide gain to the region but will reduce the gap between poor and rich in Pakistan and hence will have a positive impact on overall income inequality in Pakistan.

China’s belt and road initiative: A preliminary quantitative assessment

Using a global computable general equilibrium model, this paper investigates the macroeconomic impact of China’s Belt and Road Initiative (BRI). Accounting for the externalities of infrastructure development with respect to trade cost reduction and energy efficiency improvement, the analysis finds BRI would bring sizable benefits to the world economy in terms of welfare and trade, even under conservative assumptions about the size of total investment under the initiative. However, China and other BRI countries need to address several important challenges in order to implement this initiative with success and realize these benefits.

Quantifying the impacts of China’s currency depreciation and capital control: a CGE analysis

ABSTRACTA dynamic global multi-regional computable general equilibrium (CGE) model is built to study the effects of Renminbi (RMB) depreciation and capital account liberalization. The simulation results suggest that although the depreciation of RMB can promote China’s trade surplus, it will nevertheless discourage domestic investment, consumption and lead to a decrease of real GDP.

Assessing economic impacts of internet adoption through reduced pulp and paper demand

We use a dynamic, global computable general equilibrium (CGE) model to capture the economic impacts of internet adoption, modeled through reduced demand in the newsprint and printing and writing paper (pulp and paper) industries. Global newsprint consumption is estimated to fall dramatically by 2030. We rely on estimates from another study that captures the change in global pulp and paper consumption using the global forest products model (GFPM), based on two scenarios: (i) full per capita internet adoption by 2100 and (ii) more rapid full internet adoption by 2050. We incorporate reductions in pulpwood consumption into a global multiregional dynamic CGE model to estimate economy-wide impacts in Canadian provinces, the United States, and the rest of the world. Results indicated that the year 2050 internet adoption scenario would result in a reduction in cumulative discounted gross domestic product (GDP) by as much as 17% in some regions of Canada, reduce GDP by 5.8% in the United States, and increase GDP by 3.3% in the rest of the world from 2006 to 2030. These findings highlight the costs of internet adoption, leaving net benefit analysis of adoption to future work.