Interregional Computable General Equilibrium Research Articles

Indonesian capital city relocation and regional economy's transition toward less carbon-intensive economy: An inter-regional CGE analysis

Transitioning to a low-carbon economy can take various forms, one of which is structural change, particularly tertiarization. When the economic structure shifts from being dominated by sectors that rely heavily on fossil fuels to one that does not, the economy can become less carbon-intensive. The relocation of Indonesia's capital city from Jakarta to East Kalimantan is an example of how a traditionally resource-intensive regional economy may respond to the sudden emergence of a large-scale service sector, in this case, the government sector. This paper investigates how the capital city relocation may affect the destination region's economic structure using an inter-regional computable general equilibrium modeling. The model considers not only how different economic sectors are interconnected but also how sectors within one province are interconnected with sectors in other provinces. According to the findings, the relocation of the capital city increases the Gross Regional Domestic Product (GRDP) of the destination region (KalTim) by a massive amount (22%) while decreasing the GRDP of Jakarta (the old capital) by a moderate amount (7%). However, because the expanding sector is relatively high-skill intensive, it tends to produce skill-biased increases in real wages. As a result, the destination region (Kaltim) undergoes massive structural change as its service sector share increases by 12%, a change historically comparable in two decades. In addition, Kaltim's carbon emission intensity decreases by 18% due to this large-scale tertiarization. The analysis has demonstrated how and to what extent the relocation of Indonesia's capital city may help the province diversify from a natural resource-intensive economy to a more service-oriented and low-carbon economy.

Analyzing indirect economic impacts of wildfire damages on regional economies.

This article estimates the economic impacts of wildfire damage on Korea's regional economies, developing an integrated disaster-economic system for Korea. The system is composed of four modules: an interregional computable general equilibrium (ICGE) model for the eastern mountain area (EMA) and the rest of Korea, a Bayesian wildfire model, a transportation demand model, and a tourist expenditure model. The model has a hierarchical structure, with the ICGE model serving as a core module to link to three other modules. In the impact analysis of a wildfire, three external shocks are injected into the ICGE model: (1) the wildfire damaged area derived from the Bayesian wildfire model, (2) changes in travel times among cities and counties derived from the transportation demand model, and (3) variations in visitors' expenditures derived from the tourist expenditure model. The simulation shows that the gross regional product (GRP) of the EMA would decrease by 0.25% to 0.55% without climate change and by 0.51%-1.23% with climate change. This article contributes to the development of quantitative linkages between macro and micro spatial models in a bottom-up system for the impact analysis of disasters, integrating a regional economic model with a place-based disaster model and the demands of tourism and transportation.

Tax exemption in Brazil in 2009: why vehicles and not agriculture? An interregional general equilibrium analysis

Tax exemption has been used systematically in Brazil to stimulate the economy. In 2009, in an attempt to stem the economic slowdown, the Brazilian government adopted a countercyclical economic policy that included lowering taxes on vehicle prices. Why was this sector chosen rather than another? This article seeks to analyse the effects of this policy on the Brazilian economy in 2009, using as a counterfactual a tax exemption policy targeted on the agriculture sector. Based on an interregional computable general equilibrium model (TERM-BR), the two policies are simulated and compared. The results show that lowering taxes on agricultural products can be considered superior to an equivalent tax reduction for vehicles, in terms of the effects on employment, income, household consumption, GDP and, especially, the distribution of economic activity across the regions of Brazil and the income distribution.

Spatial impacts of fiscal stimulus policies during the 2009 global financial crisis in Indonesia

In response to the 2008/2009 global financial crisis (GFC), many developing countries, including Indonesia, launched fiscal stimulus packages (FSP). These FSPs typically consist of several sophisticated fiscal policies that may not necessarily complement each other. While the impact of these policies at the aggregate country level in developed countries has been widely discussed, the spatial impact of these policies within developing countries is less understood. Utilizing an inter-regional computable general equilibrium (CGE) model, this paper aims to assess and understand the short- and long-term economic impacts of these stimulus policies using Indonesia as a case study. This paper, hence, provides a quantitative ex-post assessment of FSPs typically implemented during the 2009 GFC by developing economies. Overall, results, indicate that fiscal stimulus had a positive impact on aggregate demand and on poverty prevention, principally via stimulating private consumption. Corporate income tax cuts have the largest economic impact in the long-run, and cash transfers are the most useful policy tool for alleviating poverty. An FSP, however, could have an uneven spatial distributional effect on output across regions, particularly in the short-term.

The economic impacts of COVID-19 in Brazil based on an interregional CGE approach.

This study projects the economic impacts of COVID‐19 outbreak on the Brazilian economy using a dynamic interregional computable general equilibrium model. We considered two scenarios. The first scenario has two channels of transmission over the economic system: a negative shock of labour supply due to the rates of morbidity and mortality caused by the pandemic, and a temporary shutdown of nonessential economic activities. The second scenario adds to the first the effects of the government fiscal package adopted to counteract the effects of COVID‐19 on the economy. Furthermore, in both scenarios, a sensitive analysis related to the temporality of the shutdown is considered by assuming 3 and 6 months of shutdown. The results indicate a reduction of 3.78% in the national GDP growth rate in Scenario 1 and a reduction of 0.48% in Scenario 2, in 2020, with 3 months of shutdown. With 6 months, the reduction would be greater, 10.90% and 7.64% in Scenarios 1 and 2, respectively. Thus, the government fiscal stimulus considered in this study partially mitigates the reduction in GDP projected under the COVID‐19 outbreak. The study also presents sectoral projections at the national and state levels. The estimates indicate reductions in the GDP of most of Brazilian states in both scenarios.

Indonesia's Moratorium on Palm Oil Expansion from Natural Forests: Economy-Wide Impacts and the Role of International Transfers

Indonesia has introduced a moratorium on the conversion of natural forests to land used for palm oil production. Using a dynamic, bottom-up, interregional computable general equilibrium model of the Indonesian economy, we assess several scenarios of the moratorium and discuss its impacts on the domestic economy as well as on regional economies within Indonesia. We find the moratorium reduces Indonesian economic growth and other macroeconomic indicators, but international transfers can more than compensate the welfare losses. The impacts also vary across regions. Sumatra, which is highly dependent on palm oil and is home to forests that no longer have a high carbon stock, receives fewer transfers and suffers the greatest economic loss. Kalimantan, which is relatively less dependent on palm oil and has forests with a relatively high carbon stock, receives more transfers and gets greater benefit. This implies that additional policy measures anticipating the unbalanced impacts of the moratorium are required if the trade-off between conservation and reducing interregional economic disparity is to be reconciled.

QUANTO VALE A ÁGUA QUE USAMOS? PROJEÇÕES DOS IMPACTOS ECONÔMICOS DE RESTRIÇÕES AO USO E ELEVAÇÃO DE PREÇOS DA ÁGUA NA REGIÃO METROPOLITANA DE BELO HORIZONTE

O problema da escassez de água no Brasil tem se intensificado nos últimos anos. Não diferente está a situação da região metropolitana de Belo Horizonte (RMBH) que presenciou a mais severa escassez hídrica de sua história em 2015. Este estudo estima o impacto econômico de restrições na oferta de água utilizando um modelo de equilíbrio geral computável inter-regional para os municípios da RMBH.Busca-se compreender a importância da água como insumo produtivo e no consumo das famílias, e como a limitação de seu uso afeta as decisões econômicas dos setores e das famílias. Os resultados indicam que para um corte de 1% no consumo total de água na RMBH seria necessária uma elevação média de tarifas de 7,3%. O efeito total sobre o uso de água mostra-se bastante inelástico, uma vez que a redução de consumo é 1/7 da elevação dos preços.

Structuring investment and regional inequalities in the Brazilian Northeast

ABSTRACTStructuring investment and regional inequalities in the Brazilian Northeast. Regional Studies. This paper evaluates the long-run regional impacts of the construction of three oil refineries proposed for Brazil’s Northeast (NE) region. A dynamic, interregional computable general equilibrium (CGE) model was developed, with 28 regions in the NE and the rest of Brazil and 30 sectors. The database construction methodology could be applied to any other country. The main results of the refinery investment simulations in the NE indicate positive impacts in all regions. However, the construction and operation of these three refineries would generate an increase in intraregional inequalities. On the other hand, in the long run, these investments could contribute to the NE gaining an increased relative share of Brazilian gross domestic product (GDP).

Controlling deforestation in the Brazilian Amazon: Regional economic impacts and land-use change

Brazil confirmed targets for reducing greenhouse gas emissions in 2008, including an 80% reduction in deforestation in the Amazon by 2020. With this in mind, we investigated the trade-off between environmental conservation and economic growth in the Amazon. The aim of this study is to project the economic losses and land-use changes resulting from a policy to control deforestation and the rise in land productivity that is necessary to offset those losses. We developed a Dynamic Interregional Computable General Equilibrium Model for 30 Amazon regions with a land module allowing conversion between types of land. The results have shown that the most affected regions would be soybeans and cattle producers as well as regions dominated by family farms. To offset these impacts, it was estimated that an annual gain of land productivity of approximately 1.4% would be required.

Regional analysis of domestic integration in Egypt: an interregional CGE approach

We develop an interregional computable general equilibrium model to help assess the ex ante impact of transportation infrastructure policies in Egypt. The model is integrated with a GIS network. We illustrate the analytical capabilities of the model by looking at the domestic integration of the country. Improvements of transportation costs among Egyptian governorates and of their links to the broader world economy are considered in stylized simulations. The results provide quantitative and qualitative insights (general equilibrium effects) into trade-offs commonly faced by policy makers when dealing with transportation infrastructure projects in a spatial context. In the case of Egypt, there seems to be an important trade-off between efficiency and regional equity: projects that produce potential higher impacts on national GDP also tend to contribute more to regional concentration.

Projeção de um cenário econômico e de desmatamento para a Amazônia Legal brasileira entre 2006 e 2030

Resumo: A Amazônia Legal foi alvo de políticas desenvolvimentistas no século XX. Com características estruturais diferentes das do restante do Brasil e abrigando a maior floresta tropical do mundo, o resultado foi crescimento econômico e desmatamento. Alguns fatores são apontados como determinantes desse desmatamento, como as políticas de incentivo ao desenvolvimento das décadas de 1970 e 1980, os investimentos em infraestrutura, a pecuária e a agricultura.Este artigo apresenta uma metodologia de projeção para o desmatamento nas mesorregiões da Amazônia Legal, decorrente de fatores econômicos e de condicionantes estruturais da região. Para isso, foi usado um modelo de Equilíbrio Geral Computável (EGC) dinâmico inter-regional comum a especificação para a ocupação do solo nas regiões, isto é,uma inovação para a literatura.Os resultados para o período estudado(2006-2030) apontaram que as regiões com maior crescimento e desmatamento seriam aquelas situadas no arco do desmatamento(Mato Grosso, Pará e Rondônia), principalmente regiões produtoras de soja e bovinos.

Desmatamento e a contribuição econômica da floresta na Amazônia

Resumo Este artigo analisa, do ponto de vista econômico, a contribuição da floresta desmatada para a economia da Amazônia Legal entre 2006 e 2011, assim como os efeitos de uma política de controle do desmatamento entre 2012 e 2020. Para isso, utilizou-se um modelo de equilíbrio geral computável (EGC) inter-regional, construído para capturar as especificidades e heterogeneidade de 103 microrregiões da Amazônia Legal. As simulações da contribuição econômica do desmatamento para essas regiões permitiriam avaliar o custo relativo de políticas de controle, estimando o valor implícito do desmatamento na dinâmica econômica. Os resultados apontam uma contribuição positiva, embora pequena, do desmatamento para o crescimento econômico da Amazônia de 2006 a 2011. Este resultado é reforçado pelos impactos econômicos de uma política hipotética de controle do desmatamento, que sugerem uma perda apenas marginal sobre o crescimento econômico dessas regiões.

Contributions of human capital investment policy to regional economic growth: an interregional CGE model approach

The purpose of this paper is to examine the regional impact of educational investment policies on migration and economic growth utilizing an interregional computable general equilibrium (ICGE) model with a human capital module. The CGE model is developed for three industrial sectors of two regions in South Korea, specifying the behaviors of the following economic agents: six producers, two regional households, two regional governments, a national (central) government, and the rest of the world. The model primarily focuses on structural linkages among migration, university education, labor productivity, and human capital formation in the short run and long run. Our paper demonstrates that the impact of the human capital investment on GRP growth was higher for the 30s age cohort than for any other age cohort, and this holds for both the Seoul Metropolitan Area (SMA) and the rest of Korea (ROK). With the aim of reducing regional disparity and of redistributing concentrated populations, the national government’s human capital investment policy should focus on local job training programs with the target population of the 30s age cohort in the ROK.

Spatial perspectives of increasing freeness of trade in Lebanon

In this paper, we use an interregional computable general equilibrium model for Lebanon—the ARZ model—for the analysis of place-based policies in the country, in an attempt to bring additional insights to some of the proposals presented in the National Physical Master Plan of the Lebanese Territory. We apply the model to look at the ex ante potential regional implications of an increase in domestic and international integration of Lebanese regions through reductions in trade costs. The link between freeness of trade and the equilibrium distribution of activities is explored.

Optimal Urban Population Size: National vs Local Economic Efficiency

This paper explores whether the population size of the Seoul Metropolitan Area (SMA) in Korea is efficient in terms of the national economy. To undertake this analysis, a recursively dynamic interregional computable general equilibrium (ICGE) model with a population module is developed. In this model, the explicit costs and benefits of population growth are estimated by using the industrial value added and consumer price inflation functions for each region. The counter-factual analysis shows that national population decentralisation away from the SMA is desirable for Korea’s economic growth. Korea’s GDP is estimated to be maximised when the SMA’s national population share is at 39 per cent in the short term and 35 per cent in the long term. However, the SMA government is likely to have incentive to maintain its population at around 40 per cent of the national population, where per capita income at the regional, not national, level is maximised.

Impactos Econômicos do Código Florestal Brasileiro: uma discussão à luz de um modelo computável de equilíbrio geral

Resumo:O trabalho analisa os impactos econômicos decorrentes da aplicação do Código Florestal, na sua nova versão e na anterior, sobre o Brasil e suas regiões. Para tanto, foram analisados três cenários distintos de aplicação do código por meio de um modelo de equilíbrio geral inter-regional, o TERM-BR, a partir do qual se podem obter os resultados a nível nacional e regional. Os dados básicos foram obtidos por meio de estudos realizados via imagens de satélite e compatibilizados com as informações de uso do solo provenientes do Censo Agropecuário de 2006. As conclusões mostraram que as restrições mais brandas da nova legislação, de fato, desdobram-se em menores impactos econômicos. Com o novo Código Florestal, a adequação às restrições legais implicaria redução de 0,19% do PIB do País ou de 0,17%, quando utilizado o mecanismo de compensar o déficit de Reserva Legal em outro estado. Na versão anterior do código, por sua vez, esse percentual seria de 0,37% do PIB. Esses resultados agregados, contudo, têm diferenças significativas quando analisados entre as regiões do Brasil, uma vez que, regionalmente, as incidências legais são distintas em cada um dos cenários.

Regional Policy Spillovers: The National Impact of Demand-Side Policy in an Interregional Model of the UK Economy

UK regional policy has been advocated as a means of reducing regional disparities and stimulating national growth. However, there is limited understanding of the interregional and national effects of such a policy. This paper uses an interregional computable general equilibrium model to identify the national impact of a policy-induced regional demand shock under alternative labour market closures. Our simulation results suggest that regional policy operating solely on the demand side has significant national impacts. Furthermore, the effects on the nontarget region are particularly sensitive to the treatment of the regional labour market.

Energy policy and regional inequalities in the Brazilian economy

The objective of this paper is to evaluate the long-run regional impacts of the tariff policy of the Brazilian electric power sector. This sector has undergone a reform process that started in the 1990s. Since the beginning of the reform, two spatial trends of distribution of electric power tariffs have emerged among the Brazilian states, one of convergence and another of spatial divergence. These trends have been guided by the new electric power tariff policy and by the spatial features of the Brazilian economy, which is marked by a high degree of spatial concentration and hierarchical distribution of large markets. In addition, because of the presence of strong economies of scale, the recent electric power prices differentials might be caused by differentials in market size that provide better conditions for the achievement of economies of scale for electric power utility companies located in larger markets. Given the role of electric power as an important intermediate input in the production process and the interdependence between sectors, an Energy Interregional Computable General Equilibrium model was used to simulate the long-run regional impacts of electric power tariff policy in Brazil. The simulations showed that the heterogeneity of energy-intensity and the differentials of energy substitution drive the spatial impacts of changes in electric power prices. On the other hand, the recent trend of spatial dispersion of electric power prices might contribute to a decrease in the long-run economic growth and to an increase in the regional inequalities in Brazil.

REGIONAL ECONOMIC MODELLING FOR INDONESIA: IMPLEMENTATION OF IRSA-INDONESIA5

Ten years after Indonesia implemented a major decentralisation policy, regional income per capita disparity and excessive rate of natural resource extraction continue to be pressing issues. There are great interests in identifying macro policies that would reduce regional income disparity and better control the rate of natural extraction, while maintaining reasonable national economic growth. This paper utilises an inter-regional computable general equilibrium model, IRSA-INDONESIA5, to discuss the economy-wide impacts of various policies dealing with the development gap among regions in the country, achieving low carbon growth, and reducing deforestation. The results of simulations conducted reveal that, primarily, the best way to reduce the development gap among regions is by creating effective programs to accelerate the growth of human capital in the less developed regions. Secondly, in the short-term, the elimination of energy subsidies and/or implementation of a carbon tax is effective in reducing CO2 emission and producing higher economic growth, while in the long-run, however, technological improvement, particularly toward a more energy efficient technology, is needed to maintain a relatively low level of emission with continued high growth. Thirdly, if reducing deforestation means reducing the amount of timber harvested, it negatively affects the economy. To eliminate this negative impact, deforestation compensation is needed. Keywords: computable general equilibrium, development planning and policy, environmental economics

An integrated IO and CGE approach to analysing changes in environmental trade balances

AbstractInput‐output (IO) tables and demand‐driven multiplier techniques are absolutely appropriate for conventional pollution attribution (accounting) analyses as they provide all the required information on pollution embodied in intersectoral interactions and interregional trade flows. However, as a model of how the economy adjusts in response to a marginal change in activity, IO is unlikely to be appropriate as it is only a very special case of general equilibrium models. We propose an integrated IO and computable general equilibrium (CGE) approach, with CGE analysis of the impacts of a change in activity and model results used to inform an IO attribution analysis of pollution embodied in interregional trade flows before and after the change is introduced.Resumen. Las tablas input‐output (IO) y las técnicas multiplicadoras en función de la demanda son totalmente apropiadas para los análisis (contables) convencionales de atribución de la contaminación ya que proporcionan toda la información requerida acerca de la contaminación que acompaña a las interacciones intersectoriales y flujos comerciales interregionales Sin embargo, como modelo acerca de cómo la economía se ajusta en respuesta a cambios marginales de la actividad, es poco probable que IO sea apropiado ya que es solamente un caso muy especial de modelos de equilibrio general. Proponemos un enfoque integrado de IO con equilibrio general computable (EGC), con un análisis EGC de los impactos de un cambio en la actividad y siendo los resultados del modelo utilizados para instruir un análisis de atribución IO de la contaminación presente en flujos comerciales interregionales, antes y después de la introducción del cambio.