Multi-regional Computable General Equilibrium Research Articles

CONSTRUCTING A MULTI-REGIONAL SOCIAL ACCOUNTING MATRIX FOR TURKEY

Regional impacts of public policies in Turkey have led to Regional Development Agencies and related institutions having responsibility for setting and achieving sustainability policies at the regional level. As a result, there is a significant interest in developing empirical models that can deal with the macro, micro and regional impacts of economic policies and interregional spillover effects. Spatial or Multi-Regional Computable General Equilibrium models are the most capable models to handle a wide range of policy relevant regional questions and the effects of policies on a comprehensive set of regional and national economic variables. However, an important ingredient in meeting the Multi-Regional CGE analysis is Multi-Regional Social Accounting Matrices. This study is focusing on the building the first Multi-Regional Social Accounting Matrix for Turkey with 11 regions and 8 sectors. We utilize from the most updated available datasets and implement the most conveninent non-survey methods which fit to data availability in Turkey.

Environmental and welfare assessment of fossil-fuels subsidies removal: A computable general equilibrium analysis for Ghana

One of the motivations for the removal of subsidies on fossil fuels is that these subsidies lead to the over-consumption of energy, and as a result, undermine environmental quality. Despite the huge opportunities that removal of subsidies on fossil fuels may bring for climate change mitigation, empirical studies for Ghana have failed to appropriately test these links. For this reason, this study employs a multi-region computable general equilibrium (CGE) model to evaluate the welfare and environmental impacts from imported refined oil subsidies removal in Ghana. The simulation experiment shows evidence of welfare losses even if environmental benefits are accounted for. Although the rate of CO2 emissions appears to increase, there is an overall 1.9% improvement in environmental quality due to the removal of fuel subsidies. The results provided in this study imply that the removal of subsidies on energy should be implemented along with policies aimed at stimulating economic activities. In addition, the study has implications for the so-called ‘green paradox’.

Economic impacts of an international carbon market in achieving the INDC targets

Marked-based emissions trading systems (ETS) are cost effective to facilitate emission abatement and are expected to play an essential role in international cooperation for global emission mitigation. In this analysis we discussed the impacts of a linked ETS in achieving the Intended Nationally Determined Contribution (INDC) emission reduction target in 2030 with a multi-regional computable general equilibrium (CGE) model. We find that Global ETS can distinctly reduce the emission reduction cost in Annex I countries. The equilibrium CO2 price in the global carbon market in 2030 is around $29.83 per ton of CO2, lower than that of the United States ($45.19/tCO2) and the EU ($41.50/tCO2), about the same level with that of China ($37.30/tCO2), and higher than that of India ($8.39/tCO2) and Russia ($3.97/tCO2) in National ETS Scenario. As the reallocation of emission permits in linking ETS would alter the energy consumption cost of the participant countries, the permit importers' production would be more cost competitive, especially for energy intensive products. The permit exporters undertake the opposite economic impact. However, the fund transferred from the permit importers could stimulate consumption and investment activities in permit exporter countries and overall the linking ETS increase the economic aggregate of the participating countries.

Understanding rural restructuring in China: The impact of changes in labor and capital productivity on domestic agricultural production and trade

In China, the provinces of Shandong and Henan are the leading provinces for grain production and also have the highest populations. In this study, we quantitatively analyze the impact of the two primary factors that indicate rural restructuring (namely, an increase in labor- and capital-augmenting technical change, represented by labor and capital productivity) on wheat production in Shandong and Henan provinces, and the consequent effects on exported and imported wheat volumes in other provinces through to 2020. For the analysis, we use The Enormous Regional Model (TERM), an established multi-region computable general equilibrium model. The results show that the magnitude of change generated by the increase in labor productivity is larger than that generated by the increase in capital productivity. Therefore, great importance should be attached not only to increasing capital technical change but also improving labor technical change. This study also reveals that regional competitive industry can easily shape absolute competition superiority, which consequently exerts a large impact on the homogeneity of products. Rural China is moving into a critical stage of restructuring, and therefore the government should provide rational top-down guidance. The central government should avoid adopting a “one size fits all” policy and simply supporting a single industry or particular development patterns. Rural China should form stable, sustainable, and specialized agricultural production arranged by geographic areas, which would not only guarantee China’s food security, but also improve the nation’s competitive capacity in the international market.

The Economic Effects of Initial Quota Allocations on Carbon Emissions Trading in China

The emissions trading scheme has recently become an important emissions reduction mechanism in China. The initial quota allocation is one of the key points in its design, which includes the initial quota allocation criterion and allocation method. In this paper, we analyze the regional macroeconomic impacts of emissions trading in China under different quota allocation criteria and allocation methods using a multiregional computable general equilibrium (CGE) model. The results show that the Ability-to-Pay criterion is better than the other criteria, as it can lead to fewer macroeconomic costs and welfare losses; narrow the economic gap between the eastern, central and western regions; and guide investment into the western regions. Comparing free allocation and auction, it is determined that free allocation leads to lower macroeconomic costs, while auction is better at adjusting the industrial structure. This indicates that a hybrid allocation method is preferable.

Economic impacts of climate change considering individual, additive, and simultaneous changes in forest and agriculture sectors in Canada: A dynamic, multi-regional CGE model analysis

Computable general equilibrium (CGE) model analyses of economic impacts from climate change have often focused on individual impacted sectors such as forest. However, such an approach may not provide accurate economic impact estimates since climate change will affect multiple sectors simultaneously. Furthermore, imprecise aggregate economic impact estimates may result if one were to add together individual sector impact estimates. We used CGE models to compare economic impacts of individual, additive, and simultaneous climate-induced changes in Canadian and other regions' forest and agriculture sectors over the 2006–2051 period. We found negative additive impact biases in a majority of regions for five of our economic variables including GDP, income, imports, terms of trade, capital, and total output. Positive additive impact biases were found in a majority of regions for four economic variables including welfare, consumption, export, and labor. These findings emphasize the importance of considering impacted sectors simultaneously when using CGE models to evaluate the economic impacts of climate change.

Regional burden sharing of GHG mitigation policies in a decentralized federation

The distribution of the burden of cost of GHG mitigation policies is a contentious issue. This is particularly true among regional jurisdictions within a federal country with decentralized power. The regional allocation of emissions permits could hinder the political feasibility of national GHG mitigation policies. We build a multi-region computable general equilibrium (CGE) model to assess the implications of different burden sharing rules in a hypothetical national GHG abatement policy with a market-based instrument. In addition to assessing the impacts of regional permit allocation rules that entail inter-regional transfers of wealth, we consider a particular emissions allocation scheme, called ‘no prior entitlement’ (NPE), that avoids such transfers. The insights derived from the simulations suggest that the NPE policy avoids the politically contentious issues of inter-regional transfers of scarcity rents. Its welfare impact lies between those in the entitlement-based permit allocation schemes.

Deforestation Control and Agricultural Supply in Brazil

AbstractBrazil has dramatically increased its agricultural area under cultivation, in the process becoming a major food exporter at the cost of natural forests. A new challenge is to meet the food demands of an expanding world population in the face of pessimistic climate change scenarios and the increasing scarcity of land. Can Brazil help meet rising world food demand while conserving its tropical rainforests? To address this question we simulate outcomes using a large dynamic multiregional computable general equilibrium model of Brazil to model land use over 20 years in 90 zones and 14 agricultural sectors. The model features a land‐use change module based on a transition matrix obtained from satellite imagery. We analyze two scenarios of deforestation reduction, both linked to actual policy proposals. Model results indicate several mechanisms that allow food output to increase without expanding land supply. In particular, we stress the role of Brazil's vast, low‐yield pasture area as a source of future cropland. Thus, we find that controlling deforestation leads to rather small decreases in food output—which could be neutralized by tiny exogenous productivity improvements. We conclude that the decrease in deforestation will not significantly compromise Brazilian agricultural supply capacity in the foreseeable future.

Socioeconomic impacts of hydropower development on the Yibin–Chongqing section, upper reaches of the Yangtze River

The aim of this paper is to quantify the socioeconomic impacts of hydropower development to reflect its positive functions from multiple perspectives and dimensions. By applying the multi-regional Computable General Equilibrium (CGE) model to a case study of the Yibin–Chongqing section along the upper reaches of the Yangtze River, the analysis shows that hydropower development has outstanding benefits for the regional economy and livelihood improvement, as proved by various indicators including consumption, investment, GDP, employment, and income. Meanwhile, application of the CGE model provides an effective way to quantitatively assess the socioeconomic impact of hydropower and other clean energy development.

Modeling the Impacts of Urbanization and Industrial Transformation on Water Resources in China: An Integrated Hydro-Economic CGE Analysis

Pressure on existing water resources in China is expected to increase with undergoing rapid demographic transformation, economic development, and global climate changes. We investigate the economy-wide impacts of projected urban population growth and economic structural change on water use and allocation in China. Using a multi-regional CGE (Computable General Equilibrium) model, TERM (The Enormous Regional Model), we explore the implications of selected future water scenarios for China’s nine watershed regions. Our results indicate that urbanization and industrial transformation in China will raise the opportunity cost of water use and increase the competition for water between non-agricultural users and irrigation water users. The growth in water demand for domestic and industrial uses reduces the amount of water allocated to agriculture, particularly lower-value and water-intensive field crops. As a response, farmers have the incentive to shift their agricultural operations from traditional field crop production to higher-value livestock or intensive crop production. In addition, our results suggest that growing water demand due to urbanization and industrial transformation will raise the shadow price of water in all nine river basins. Finally, we find that national economic growth is largely attributable to urbanization and non-agricultural productivity growth.

Modeling Firm Heterogeneity in International Trade: Do Structural Effects Matter?

This paper analyzes the qualitative properties of a multisectoral, multiregional computable general equilibrium model where some industries include heterogeneous firms as in Melitz (2003). The model, formulated according to Roson and Oyamada (2014), adds endogenous productivity effects to a standard Walras-Ricardian framework. We argue that the inclusion of such effects changes the magnitude and distribution of welfare benefits obtainable by reductions in trade barriers, due to of comparative advantages. We illustrate the point through a numerical example, in which alternative model formulations are assessed. A standard neoclassic GE model, a basic Melitz model and a hybrid model are then compared. The three model versions are all calibrated with the same data set and an identical simulation experiment (a 50% reduction of transport costs between two regions) is carried out in the three cases. The results show that the hybrid model displays the largest welfare gains, as it combines Ricardian comparative advantages with Melitz average productivity improvements. However, they also show that new effects, not present in the original Ricardo and Melitz frameworks, are at a work.

ASSESSING MULTIREGIONAL ECONOMIC IMPACTS OF ALASKAN FISHERIES: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS

Alaskan industries, including the seafood industry, are characterized by strong linkages with the rest of the United States, including a large leakage of factor income to, and large imports of goods and services from the rest of the US, especially the West Coast region. This study develops a multiregional computable general equilibrium (MRCGE) model of three US economic regions: Alaska (AK), the West Coast (WC), and the rest of the US (RUS). The model is applied to issues affecting Alaskan fisheries, and is used to calculate the multiregional economic effects, including spread effects, of changes in: (i) the volume of fish caught off AK; (ii) the demand for Alaskan seafood by both the US and the rest of the world; and (iii) currency exchange rates.

Does Trade Liberalization Promote Regional Disparities? Evidence from a Multiregional CGE Model of India

Summary Over last few decades, there has been a growing interest among researchers in understanding the link between trade liberalization and regional disparities within the context of an individual country. In this study, we develop the first ever single-country multiregional Computable General Equilibrium (CGE) model for the Indian economy to investigate this linkage. Overall our results suggest that, in the short run, trade liberalization has a beneficial impact on the rich and fast-growing middle-income states and a marginal or negative impact on the poor states.

REDD in the Carbon Market: A General Equilibrium Analysis

Deforestation is a major source of CO2 emissions, accounting for around 17 % of annual anthropogenic carbon release. While costs estimates of reducing deforestation vary depending on model assumptions, it is widely accepted that emissions reductions from avoided deforestation consist of a relatively low cost mitigation option. Halting deforestation is therefore not only a major ecological challenge, but a great opportunity to cost effectively reduce climate change impacts. In this paper, we analyze the impact of introducing avoided deforestation credits into the European carbon market using a multiregional Computable General Equilibrium model. Taking into account political concerns over possible “flooding” of credits from reduced emissions from deforestation and forest degradation (REDD), limits to the number of these allowances are considered. Finally, we account for both direct and indirect effects occurring on land and timber markets resulting from lower deforestation rates. We conclude that avoided deforestation notably reduces climate change policy costs—approximately by 80 % with unlimited availability of REDD credits—and may drastically reduce carbon prices. Policy makers may effectively control for this imposing limits to REDD credits use. Moreover, avoided deforestation has the additional positive effect of reducing carbon leakage of a unilateral European climate change policy. This is good news for the EU, but not necessarily for REDD regions. We show that REDD revenues are not sufficient to compensate REDD regions for a less leakage-affected and more competitive EU in international markets. In fact, REDD regions would prefer to free ride on the EU unilateral mitigation policy.

Economic impacts of climate change in the forest sector: a comparison of single-region and multiregional CGE modeling frameworks

Climate change impacts on forests are largely expected to intensify over the next few decades. Computable general equilibrium (CGE) modeling is increasingly becoming a popular tool for assessing these impacts. Previous analyses in this area have been based on either single-region or multiregional CGE model specifications, each with their own advantages and disadvantages. To date, however, there has been no systematic comparison of the potential differences in economic impact estimates between the two CGE model specifications. To examine the extent of these potential differences, we conducted a comparative economic impact analysis of climate change in the forest sector across Canadian provinces, the United States, and the rest of the world using dynamic, single-region and multiregional CGE models over the 2006–2051 period. Results revealed that, within each region, different model specifications produced unique economic impact estimates, differing by as much as 18% under each climate change scenario considered. Overall, a majority of Canadian regions recorded smaller (in absolute value terms) and more positive economic impacts using single-region models compared with the multiregional model. Differences in international trade specifications between models, together with unique climate change impact considerations across regions, played key roles in the findings. While few general conclusions emerge from this analysis, it is clear that CGE model specifications can have a significant effect on regional economic impact estimates of climate change in the forest sector. Thus, caution is advised when using the estimates of any one CGE model for policy purposes.

The interaction of spatial planning and transport policy: A regional perspective on sprawl

Urban sprawl is caused by the interlinkage of spatial planning and transport characteristics. However, there are only a few approaches that quantify the cross-impacts of policy options in these two spheres. The purpose of this paper is thus a combined regional analysis of spatial planning instruments and transport policy, with a special emphasis on urban–rural diversities. We link a multi-region computable general equilibrium model that incorporates elements of the new economic geography with a transport forecast model. The general equilibrium model illustrates residential choice between urban and peripheral regions, while the transport model depicts the transport implications thereof. Our results suggest that transport policy is obviously effective in addressing transport externalities, while it would have to be set at a politically infeasible stringency to have an effect on residential patterns. As for spatial planning instruments (i.e., expanding housing supply in central regions or limiting it in peripheral regions), we find a strong potential to influence residential choice and hence urban sprawl. Along this line, spatial planning instruments do have a small but still significant impact on reducing transport volume and number of trips. This impact can be enhanced by a policy promoting public transport

Potential Implications of China’s Rebalancing on China, the United States, and the Bilateral Economic Relationship

Recent research has examined trade statistics from a value-added perspective and it has traced global value chains (GVC) through countries’ domestic production, exports and imports. Research by Koopman et al., Johnson and Noguera, Timmer, and OECD-WTO has made clear that our understanding of trade linkages based on statistics in gross values can be very different from our understanding of trade based on value-added terms. This paper discusses the potential implications for the U.S. economy and its trade arising from China’s efforts to rebalance its economy and promote consumption-led growth. Our analytical framework is a multiregional computable general equilibrium (CGE) trade model. The model is calibrated to a global data set derived from version 8 of the GTAP database (Narayanan, Aguiar, and McDougall, 2012). This data set has additional information about the sourcing of imports obtained from a global value chains data (Tsigas, Wang, and Gehlhar, 2012). The model has a focus on the United States, China, and their top trade partners. Twenty six regions and 41 production sectors in each region are specified to represent the world economy. The presentation in the GTAP Conference would focus on the additional insights obtained from including the GVC information in the analysis.

Modeling Firm Heterogeneity in International Trade: Do Structural Effects Matter?

This paper analyzes the qualitative properties of a multisectoral, multiregional computable general equilibrium model where some industries include heterogeneous firms as in Melitz (2003). The model, formulated according to Roson, R. and Oyamada (2014), adds endogenous productivity effects to a standard Walras-Ricardian framework. We argue that the inclusion of such effects changes the magnitude and distribution of welfare benefits obtainable by reductions in trade barriers, due to of comparative advantages. Abstract We illustrate the point through a numerical example, in which alternative model formulations are assessed. A standard neoclassic GE model, a basic Melitz model and a hybrid model are then compared. The three model versions are all calibrated with the same data set and an identical simulation experiment (a 50% reduction of transport costs between two regions) is carried out in the three cases. The results show that the hybrid model displays the largest welfare gains, as it combines Ricardian comparative advantages with Melitz average productivity improvements. However, they also show that new effects, not present in the original Ricardo and Melitz frameworks, are at a work.

Economics of Bioenergy

Amani Elobeid 1 and Miguel Carriquiry 2 and Silvia Secchi 3 and Tun-Hsiang (Edward) Yu 41, Center for Agricultural and Rural Development, Iowa State University, Ames, IA 50011-1070, USA2, Facultad de Agronomia, Univeridad de la Republica, Avenue Eugenio Garzon 780, Montevideo 12900, Uruguay3, Department of Agribusiness Economics, Southern Illinois University, Carbondale, IL 62901-4619, USA4, Department of Agricultural and Resource Economics, The University of Tennessee, Knoxville, TN 37996-4518, USAReceived 7 November 2013; Accepted 7 November 2013This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.There has been worldwide support for the production and use of renewable energy sources, especially through major policy initiatives relating to climate change and bioenergy. These policies include the United States' Environmental Protection Agency's Renewable Fuel Standard (RFS2) and the American Clean Energy and Security Act (ACES) of 2009 (H.R. 2454), Brazil's 2009 National Climate Change Policy, Canada's 2006 Renewable Fuels Regulations, and the European Union's 2009 Energy and Climate Change Package. The rationales behind these policies have been multifold, ranging from less reliance on imported fuels, reducing energy prices, and improving the rural economy to mitigating climate change. Some have argued that bioenergy has not delivered on its promise of energy security and reduction in greenhouse gas emissions, especially in the case of field crops utilized to produce biofuels, bioheat, and biopower. The economic and environmental consequences of this bioenergy expansion have not been fully understood, primarily because bioenergy markets are not well developed and are still in flux. The main objective of this special issue is to better understand the emergence of bioenergy markets and explore the direct or indirect consequences of the expansion of this alternative energy source on the economy, energy, and commodity markets and associated environmental impacts at the country, regional, or global level. The broad range of environmental and economic impacts of biofuel production as well as their dependence on specific feedstocks and landscapes is reflected in the articles of this special issue.Y. W. Zhang and B. A. McCarl analyze the effects of autonomous adaptation-adjusted climate change and the Renewable Fuel Standard (RFS2) on US agriculture. For this analysis, the authors use the agricultural component of the FASOMGHG model, which models land use allocation within the US agricultural sector. The results show that while the impacts of climate change and RFS2 act in opposite directions, there is a net positive effect on agricultural consumer welfare and agricultural producer income. The results also suggest that, for RFS2 biofuel production, climate change promotes the use of crop residues and energy crops (other than switchgrass) for cellulosic ethanol production.F. Taheripour and W. E. Tyner use a multiregional computable general equilibrium model (GTAP-BIO), modified to include second-generation biofuels, to evaluate induced land use change (ILUC) emissions for alternative biofuel pathways in the United States. They calculate the ILUC emissions using four existing major emission factors and examine the uncertainties related to these factors and their consequences for the estimated ILUCs. The results show that the production of biofuels from dedicated energy crops shifts existing marginal cropland-pasture to crop production and also causes moderate deforestation. The largest land use change is generated from growing switchgrass as a biofuel feedstock while the lowest land use change is generated from Miscanthus for bio-gasoline production. This result is mainly due to the assumed yields for the two crops. …

Switching to carbon-free production processes: Implications for carbon leakage and border carbon adjustment

Climate policy under partial global compliance raises concerns regarding carbon leakage. While border carbon adjustment (BCA) measures are a potential remedy, they have also been criticised on various grounds. This paper therefore investigates whether a policy fostering the switch to carbon-free technologies can substitute for BCAs. A reason for the effectiveness of a targeted technology policy is that major leakage prone sectors (such as iron and steel), have two main sources of carbon emissions, combustion of fossil fuels and industrial processes. While combustion emissions can be reduced relatively easy by increasing energy efficiency, reducing process emissions requires a switch to low-carbon production processes, e.g. in steel production by deploying electrolysis based on large-scale solar electricity. We show by means of a multi-regional computable general equilibrium analysis that such a switch in steel production technology can eliminate a significant fraction of carbon leakage and also increase sectoral output and welfare. Since the necessary technologies are not available at large scale yet (however, are likely to be by 2020), a transitional BCA scheme may be a crucial supportive instrument to foster such technology switches. Yet, in the long run BCA should be phased out to preserve the incentive for carbon-free innovation.