Multi-regional Computable General Equilibrium Model Research Articles

An India–China FTA

In a recent visit to India the Chinese president, Hu Jintao, proposed closer economic relations between China and India, possibly a India–China free trade area (FTA). These two economies have been experiencing rapid growth during the last couple of decades and in recent years trade between these two nations has grown spectacularly. This article analyzes the implications of a possible India–China FTA on trade flows, real output and investment both at the aggregate and industry levels in India, China, the rest of Asia, the North American and European economies using a multi-sector, multi-region dynamic computable gen-eral equilibrium (CGE) model. Our simulation results suggest that the overall economic gains to India and China would be modest. The distribution of the economic gains, however, depends on the speed of elimination of the bilateral tariffs. China gains more if the tariffs are eliminated immediately, whereas India gains more from gradual liberalization. India’s exports to China could expand by almost 57 per cent, while imports from China could increase by over 240 per cent implying an increased bilateral trade deficit. Output in each sector in India would increase. Sectors such as clothing, leather, textiles and motor vehicles and parts would gain the most in India.

Modelling drought and recovery in the southern Murray-Darling basin*

The prolonged drought from 2006–07 to 2008–09 in south-eastern Australia presented severe difficulties for dry-land and irrigation farmers in the southern Murray-Darling basin. A dynamic multi-regional computable general equilibrium model (TERM-H2O) is used to estimate the economy-wide small region impacts during and after drought. Drought reduces real GDP in some small regions by up to 20 per cent. Irrigation water trading and farm factor movements alleviate losses. The drought results in an estimated 6000 jobs being lost across the southern basin. Depressed farm investment during drought results in farm capital not returning to baseline levels after drought. Consequently, job numbers in 2017–18 remain 1500 below forecast in the southern basin.

Saving the Southern Murray-Darling Basin: The Economic Effects of a Buyback of Irrigation Water*

We use TERM-H2O in analysing the effects of the Government buying back water from irrigators in the Southern Murray-Darling Basin (SMDB) and thereby increasing river flows. TERM-H2O is a dynamic multiregional computable general equilibrium model containing water accounts. Controversially, our results suggest that buyback would increase economic activity in SMDB. Although a scheme of environmentally useful size would sharply increase the price of irrigation water, there would be little effect on aggregate SMDB farm output. Instead, farm resources would be reallocated between activities. Because farmers are owners of water rights, they would benefit from the price increase induced by buyback.

An Open Economy Spatial General Equilibrium Model Considering the Role of Trade Gateway City

Demand for trade transport sector is basically a derived demand for tradable goods. On the other hand, the demand for general industries is influenced by the scale of the transport sector in a trade gateway city. Usually trade transport industries are located near a port or an airport. The locational characteristics have to be considered in order to understand the effect of port/airport policy and trade policy on the regional economy. This paper discusses an open economy multi-region computable general equilibrium model which features the activity of trade related industrial sector, with focus on export and import. The behaviors of the export industry and import industry sectors are explicitly formulated in the model as well as other industrial sector. The numerical analysis presents the implications of the impacts of trade demand shock to trade gateway city and hinterland city.

EU Mitigation, REDD and the Carbon Market: A General Equilibrium Assessment

Deforestation is a major source of CO2 emissions, accounting for around 17% of total annual anthropogenic carbon release. While the costs estimates of reducing deforestation rates considerably 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 also a great opportunity to cost effectively reduce climate change negative impacts. In this paper we analyze the impact of introducing avoided deforestation credits into the European carbon market in the context of a EU policy aiming to reducing EU CO2 emissions by 20% wrt 1990 in 2020 using a multiregional Computable General Equilibrium model. Taking into account political concerns over a possible flooding of REDD credits, various limits to the number of REDD allowances entering the carbon market are considered. Finally, unlike previous studies, we account for both direct and indirect effects occurring on land, crops’ and timber markets resulting from lower deforestation rates. We conclude that allowing REDD credits trade is effective in reducing deforestation activities, has only moderate effects on land and timber markets and negligible effects on food prices. Moreover, it notably reduces climate change policy costs approximately by 80% with unlimited availability of REDD credits and may drastically reduce carbon prices. Policy makers may, however, effectively control for this last effect tuning the supplementarity of avoided deforestation credits use. Finally, avoided deforestation has the additional positive effect of reducing carbon leakage of an unilateral European climate change policy. This is good news for the EU, but not necessarily for REDD regions. Indeed 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.

Climate-change feedback on economic growth: explorations with a dynamic general equilibrium model

ABSTRACTHuman-generated greenhouse gases depend on the level and emissions intensity of economic activities. Therefore, most climate-change studies are based on the models and scenarios of economic growth. Economic growth itself, however, is likely to be affected by climate-change impacts. These impacts affect the economy in multiple and complex ways: changes in productivity, resource endowments, production and consumption patterns. We use a new dynamic, multi-regional computable general equilibrium (CGE) model of the world economy to answer the following questions: Will climate-change impacts significantly affect growth and wealth distribution in the world? Should forecasts of human-induced greenhouse gas emissions be revised, once the climate-change impacts are taken into account? We found that, even though economic growth and emission paths do not change significantly at the global level, relevant differences exist at the regional and sectoral level. In particular, developing countries appear to suffer the most from the climate-change impacts.

Regulating CO 2 emissions of transportation in Europe: A CGE-analysis using market-based instruments

This paper analyzes the use of market-based emission regulation instruments to address the carbon dioxide emissions of transportation. Simulations with a static multi-region computable general equilibrium model show that including transportation into the European emission trading system is superior to a closed emission trading system for transportation or a tax-based approach. Furthermore, we show that exempting transportation from emission regulation is the most favorable approach in terms of welfare. This counterintuitive result is due to a large tax-interaction effect caused by high pre-existing fuel taxes in the transport sector.

REGIONAL SHORT-RUN EFFECTS OF TRADE LIBERALIZATION IN BRAZIL

We use a single-country multi-regional computable general equilibrium model to evaluate regional short-run impacts of reduction in import tariffs resulting from recent free trade area agreements, on poverty and distribution of income in Brazil. Results show that trade can reduce inter-regional income inequality, but poor urban households lose with trade liberalization. Trade policy alone is not sufficient for achieving more equitable income distribution goals in Brazil. Without greater investment in human and physical capital, incomes in most regions of Brazil are likely to lag behind incomes in the South/Southeast, the most developed regions in the country.

REDD in the Carbon Market: A General Equilibrium Analysis

Deforestation is a major source of CO2 emissions, accounting for around 17% of total annual anthropogenic carbon release. While the cost estimates of reducing deforestation rates vary considerably 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 also a great opportunity to cost effectively reduce climate change negative 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 – the ICES model (Inter-temporal Computable Equilibrium System). Taking into account political concerns over a possible “flooding” of REDD credits, various limits to the number of REDD allowances entering the carbon market are considered. Finally, unlike previous studies, 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 - by approximately 80% with unlimited availability of REDD credits - and may drastically reduce carbon prices. Policy makers may, however, effectively control for these imposing limits to avoided deforestation 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. Indeed 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.

Climate Change Feedback on Economic Growth: Explorations with a Dynamic General Equilibrium Model

Human-generated greenhouse gases depend on the level of economic activity. Therefore, most climate change studies are based on models and scenarios of economic growth. Economic growth itself, however, is likely to be affected by climate change impacts. These impacts affect the economy in multiple and complex ways: changes in productivity, resource endowments, production and consumption patterns. We use a new dynamic, multi-regional Computable General Equilibrium (CGE) model of the world economy to answer the following questions: Will climate change impacts significantly affect growth and wealth distribution in the world? Should forecasts of human-induced greenhouse gases emissions be revised, once climate change impacts are taken into account? We found that, even though economic growth and emission paths do not change significantly at the global level, relevant differences exist at the regional and sectoral level. In particular, developing countries appear to suffer the most from climate change impacts.

Border adjustment for European emissions trading: Competitiveness and carbon leakage

Unilateral or sub-global policies to combat climate change are potentially sensitive to free-riding and carbon leakage. One way of dealing with carbon leakage and competitiveness is the imposition of border adjustment measures for competing imports, for example in the form of the obligation to importers of goods to purchase and surrender emissions allowances to the authorities when importing. In this paper, we explore some implications of border adjustment measures in the EU ETS, for sectors that might be subject to carbon leakage. We examine the implications of two variants of these measures on the competitiveness of these sectors and on the global environment with the help of a multi-sector, multi-region computable general equilibrium (CGE) model of the global economy. Our calculations suggest that border adjustment might reduce the sectoral rate of leakage of the iron and steel industry rather forcefully, but that the reduction would be less for the mineral products sector, including cement. The reduction of the overall or macro rate of leakage would be modest. So, from an environmental point of view border tax adjustments would not be a very effective policy measure, but might mainly be justified by considerations of sectoral competitiveness.

The Economic Impact of Hawaii's Cruise Industry

The cruise industry worldwide has increased rapidly since the beginning of the millennium. Hawaii is no exception to this. Since the 1970s, cruise ships periodically visited the Hawaiian Islands, yet overnight cruising among the islands was rare. From 2001 to 2004, cruise ships sailing to and around Hawaii were solely foreign-flagged ships, including those home based in Hawaii. This meant much of the tourism revenue and taxes did not accrue to the local economy. Since July 2004, in addition to the foreign-flagged ships, a U.S.-flagged ship has been home-ported in the islands, paying Hawaii taxes and hiring U.S. crews with two more U.S.-flagged ships being added to the fleet in 2005 and 2006. This article uses a computable general equilibrium (CGE) model to estimate the economywide economic impact of the cruise industry on the state of Hawaii. Using the 2002 intercounty input–output table as a benchmark, the multiregion CGE model takes the direct expenditure estimates of cruise passengers, expenditure by cruise crews, and the direct expenditures by the cruise lines, as computed by the State of Hawaii and uses these direct impacts as simulations in the CGE model. Gross value added and welfare are calculated for each county and the state as a whole. Some regions benefit more than others.

Linking National and Multi-regional Computable General Equilibrium (CGE) Models: The Effects of an Increase in Award Wage Rates in Australia

Dixon P. B., Madden J. R. and Rimmer M. T. Linking national and multi-regional computable general equilibrium (CGE) models: the effects of an increase in award wage rates in Australia, Regional Studies. Wages for 20% of Australian workers are set by awards, reviewed annually in a centralized legal process. For the 2005 review, the economy-wide and regional effects of increases in awards were modelled. A top-down approach in which results from a national model, MONASH, are fed into a multi-regional model, MMRF, was adopted. This enabled the authors to produce regional results while taking advantage of detailed labour-market specifications that were available only in MONASH. In using MMRF, a limitation of previous top-down methods was overcome – the inability to handle shocks affecting cost relativities between regions. Dixon P. B., Madden J. R. et Rimmer M. T. Relier les modèles CGE national et à plusieurs régions: les effets d'une hausse des salaires d'attribution en Australie, Regional Studies. Pour 20% des travailleurs australiens, les salaires sont fixés à partir des attributions et sont révisés tous les ans par moyen d'une procédure juridique centralisée. Pour la révision 2005, on a modélisé l'impact des hausses des attributions sur l'économie et les régions. On a adopté une façon directive où les résultats d'un modèle national, MONASH, s'introduisent dans un modèle à plusieurs régions, MMRF. Cela a permis la production des résultats régionaux tout en profitant des caractéristiques du marché du travail détaillées qui n'étaient disponibles que dans le modèle MONASH. En employant le modèle MMRF, on a surmonté une contrainte aux méthodes directives antérieures – à savoir l'incapacité de traiter des chocs qui influent sur les coûts relatifs interégionaux. Modélisation CGE à plusieurs regions Relier les modèles CGE Modélisation directive Salaire minimum Salaires d'attribution australiens Dixon P. B., Madden J. R. und Rimmer M. T. Verknüpfung von nationalen und multiregionalen CGE-Modellen: die Auswirkungen einer Erhöhung des Mindestlohns in Australien, Regional Studies. Zwanzig Prozent der australischen Arbeitnehmer erhalten Mindestlöhne, die jährlich über ein zentralisiertes juristisches Verfahren festgelegt werden. Für die Festlegung von 2005 modellierten wir die wirtschaftsweiten und regionalen Auswirkungen der Mindestlohnerhöhungen. Hierfür verwendeten wir einen Top-Down-Ansatz, bei dem die Ergebnisse eines nationalen Modells (MONASH) in ein multiregionales Modell (MMRF) eingegeben wurden. Auf diese Weise erhielten wir regionale Ergebnisse und konnten zugleich die detaillierten Arbeitsmarktdaten nutzen, die nur in MONASH zur Verfügung stehen. Durch MMRF konnten wir eine Beschränkung der früheren Top-Down-Ansätze überwinden: die Unmöglichkeit einer Berücksichtigung von Schocks, die sich auf die Kostenrelativitäten zwischen Regionen auswirken. Multiregionales CGE-Modell Verknüpfung von CGE-Modellen Top-Down-Modelle Mindestlöhne Australische Mindestlöhne Dixon P. B., Madden J. R. y Rimmer M. T. Acceso a modelos CGE nacionales y multi-regionales: los efectos de un aumento del salario mínimo en Australia, Regional Studies. Los salarios para el veinte por ciento de los empleados australianos están definidos por salarios mínimos, revisados anualmente en un proceso legal centralizado. Para la revisión de 2005, modelamos los efectos regionales y en toda la economía del aumento del salario mínimo. Adoptamos un enfoque verticalista en el que los resultados de un modelo nacional, MONASH, se suministran a un modelo multi-regional, MMRF. Esto nos permitió producir resultados regionales a la vez que pudiéramos aprovecharnos de las especificaciones detalladas del mercado laboral que solamente estaban disponibles en MONASH. Al usar MMRF, superamos la limitación de los métodos verticalistas anteriores –la incapacidad de manejar choques que afectan a las relatividades de costes entre regiones. Modelo CGE multi-regional Enlaces entre modelos CGE Modelo verticalista Salarios mínimos Salarios mínimos en Australia

Brazilian Structural Adjustment to Rapid Growth in Fuel Ethanol Demand

In response to oil price rises and carbon emission concerns, policies promoting increased ethanol usage in gasoline blends are considered by many countries, including major energy users such as USA, EU and Japan. As a result, Brazil, as the largest sugar ethanol producer and exporter in the world, can expect growing foreign demand for ethanol exports. Also, the introduction of flex-fuel vehicles in Brazil is causing domestic sales of ethanol to increase steadily. In this paper, we investigate the regional and industrial economic consequences of rapid growth in Brazilian ethanol domestic consumption and exports. For this, we use a disaggregated multi-regional (top down) computable general equilibrium (CGE) model with energy industry detail. Our modelling emphasises a number of features of ethanol production in Brazil which we expect to be important in determining the adjustment of its regional economies to a substantial expansion in ethanol production. These include regional differences in ethanol and sugar production technologies, sugarcane harvesting methods and the elasticity of land supply to sugarcane production. Some of the conclusions are as follows. (i) Debate on the prospects for the Brazilian ethanol industry often places a high weight on export growth. Yet, in our simulations, growth in domestic ethanol demand will be the major influence on the Brazilian economy, at least to 2020. (ii) The pressure for further land clearance is often associated with a rapid ethanol growth scenario. But only a small (less than 2%) reduction in land use by other agriculture is necessary to accommodate the required expansion in ethanol production. Food production is equally affected by the appreciation of real exchange rate (Dutch disease effect) and growth of the light-duty vehicle fleet. (iii) Tight enforcement of a nation-wide ban on manual harvesting could reduce the ability of some (poor) regional economies to participate in the benefits of growth in ethanol production.

Climate Change Feedback on Economic Growth: Explorations with a Dynamic General Equilibrium Model

Human-generated greenhouse gases depend on the level of economic activity. Therefore, most climate change studies are based on models and scenarios of economic growth. Economic growth itself, however, is likely to be affected by climate change impacts. These impacts affect the economy in multiple and complex ways: changes in productivity, resource endowments, production and consumption patterns. We use a new dynamic, multi-regional Computable General Equilibrium (CGE) model of the world economy to answer the following questions: Will climate change impacts significantly affect growth and wealth distribution in the world? Should forecasts of human-induced greenhouse gases emissions be revised, once climate change impacts are taken into account? We found that, even though economic growth and emission paths do not change significantly at the global level, relevant differences exist at the regional and sectoral level. In particular, developing countries appear to suffer the most from climate change impacts.

Uncovering the Factors behind Comparative Regional Economic Performance: A Multi-regional Computable General Equilibrium (CGE) Approach

Giesecke J. A. and Madden J. R. Uncovering the factors behind comparative regional economic performance: a multi-regional computable general equilibrium (CGE) approach, Regional Studies. Recently, a new method has emerged for uncovering the factors driving regional growth disparities. The method involves historical analysis with a multi-regional computable general equilibrium (CGE) model. This paper has three main aims. First, to demonstrate the capacity of the CGE historical technique to decompose the causes of regional divergence into clearly specified economic factors. Second, to provide a generic miniature model that can be used as a template for adapting any multi-regional CGE model to give it the capacity for undertaking historical analysis. Third, to demonstrate that this same miniature model can be used to explain the regional results in terms of the major model mechanisms behind them. Giesecke J. A. et Madden J. R. Dévoiler les facteurs derrière la performance économique comparative des régions: une façon CGE à plusieurs régions, Regional Studies. Récemment, une nouvelle méthode qui cherche à dévoiler les facteurs qui conduisent les écarts de la croissance régionale a vu le jour. Cette méthode nécessite une analyse chronologique à partir d'un modèle d'équilibre général à plusieurs régions sur ordinateur. Cet article a trois objectifs. Primo, on cherche à démontrer la capacité de la technique chronologique CGE à décomposer les causes de l'écart régional en facteurs économiques précis. Secundo, on cherche à fournir un modèle miniature générique que l'on peut employer en tant que gabarit afin d'adapter aucun modèle CGE à plusieurs régions pour que l'on puisse augmenter sa capacité à faire une analyse chronologique. Tertio, on cherche à démontrer que ce même modèle miniature sert à expliquer les résultats régionaux en termes des mécanismes majeurs qui le soutiennent. Equilibre général sur ordinateur Croissance régionale Ecart régional Analyse chronologique à plusieurs régions Giesecke J. A. und Madden J. R. Ermittlung der Faktoren hinter der komparativen regionalen Wirtschaftsleistung: Ein multiregionaler CGE-Ansatz, Regional Studies. In jüngster Zeit ist eine neue Methode zur Ermittlung der Faktoren entstanden, die beim Regionalwachstum Disparitäten verursachen. Die Methode beinhaltet eine historische Analyse mit einem multiregionalen berechenbaren allgemeinen Gleichgewichtsmodell (CGE-Modell). Mit unserem Beitrag verfolgen wir drei Hauptziele. Erstens möchten wir nachweisen, dass sich die historische CGE-Technik zu einer Dekomposition der Ursachen regionaler Divergenz in klar spezifizierte Wirtschaftsfaktoren eignet. Zweitens wollen wir ein generisches Miniaturmodell entwickeln, das als Vorlage zur Anpassung eines beliebigen multiregionalen CGE-Modells genutzt werden kann, um mit diesem Modell historische Analysen durchführen zu können. Drittens möchten wir nachweisen, dass sich anhand desselben Miniaturmodells die regionalen Ergebnisse hinsichtlich der größeren, dahinterliegenden Modellmechanismen erläutern lassen. Berechenbares allgemeines Gleichgewicht Regionales Wachstum Regionale Divergenz Multiregionale historische Analyse Giesecke J. A. y Madden J. R. Descubrir los factores tras el rendimiento de la economía regional comparativa: un enfoque multiregional CGE, Regional Studies. Acaba de surgir un nuevo método para descubrir los factores que impulsan las desigualdades de crecimiento regional. Con este método se realizan análisis históricos mediante un modelo de equilibrio general computable y multiregional. Este documento tiene tres objetivos principales. Primero, demostrar la capacidad de la técnica histórica de equilibrio general computable (CGE) para descomponer las causas de divergencia regional en factores económicos claramente específicos. Segundo, ofrecer un modelo genérico en miniatura que puede servir como plantilla para adaptar cualquier modelo multiregional CGE y otorgarle la capacidad de realizar análisis históricos. Tercero, demostrar que este mismo modelo en miniatura puede servir para explicar los resultados regionales en términos de los mecanismos principales en el modelo que existen detrás. Equilibrio computable general Crecimiento regional Divergencia regional Análisis histórico multiregional

Computable general equilibrium estimates of the impact of the Bali bombing on the Indonesian economy

This article employs a multi-regional computable general equilibrium model of the Indonesian economy to estimate the short-run effect of a decline in tourism following the 2002 Bali bombings on the Indonesian economy. Our results suggest that of Indonesia's 26 provinces, GDP in Bali is worst affected by a negative shock to tourism exports followed by other popular tourist destinations, such as Jakarta and Yogyakarta. Within Bali we find that the tourism-related and non-tradable sectors contain the worst affected industries while export-oriented industries, such as textiles, clothing and footwear, and import-competing industries, such as machinery and electronics expand.

China Urban Future Simulation: An Integrated Framework of CGE and GIS

Urban system is a kind of complex spatial systems.Developing spatially explicit urban simulation models is a very important approach to mapping urban future,analyzing environmental impacts of urban growth and explaining urban complexities in China.However,the existing urban simulation models,for example,system dynamics based models,cellar automation based models and multi-agent based models,are not enough to explain and analyze the complexities of urban system in China for their lack of reliable economic theories and their limit in only one urban area or metropolitan area.This paper tries to integrate multi-regional computable general equilibrium models(MRCGE),geographical information system and geographical cellar dynamics into a framework,in which MRCGE is used to link many urban models into an interdependent urban model system.The authors develop a sort of hypotheses,approaches,components and core techniques for this framework,which is considered to be spatially explicit,economically clear,multi-dimension,multi-scale,accountable and operational in promoting scenario analyses and explaining urban complexities in China.

CGE EVALUATION OF A UNIVERSITY'S EFFECTS ON A REGIONAL ECONOMY: AN INTEGRATED ASSESSMENT OF EXPENDITURE AND KNOWLEDGE IMPACTS

In recent years many universities have commissioned studies of the effects of their institutions on their local economies. Typically, these impact studies have concentrated on the demand‐side stimuli to the regional economy that the university generates. Normally, the studies are undertaken with comparative‐static input‐output models. The present study employs a dynamic multiregional computable general equilibrium model to investigate supply‐side as well as demand‐side effects. There are a range of supply‐side effects that have been investigated in the spatial econometrics literature. The supply‐side impacts of the university that we examine in particular are a rise in the average skill level of the local workforce, and successful R&D outcomes. CGE modelling allows simulation of the associated productivity effects, while the dynamic features of the model allow for consequent effects on a region's population and capital stock growth rates to be taken into account.

Regional economic impacts of a plant disease incursion using a general equilibrium approach*

The present study uses a dynamic multiregional computable general equilibrium (CGE) model to estimate the micro- and macroeconomic effects of a hypothetical disease or pest outbreak. Our example is a Karnal bunt incursion in wheat in Western Australia. The extent of the incursion, the impact of the disease or pest on plant yields, the response of buyers, the costs of eradication and the time path of the scenario contribute to outcomes at the industry, regional, state and national levels. We decompose the contribution of these individual direct effects to the overall impact of the incursion. This might provide some guidance regarding areas for priority in attempting to eradicate or minimise the impacts of a disease or pest. The study also introduces a theory of dynamic regional labour adjustment in which economic events may lead to both real wage differentials and worker migration between regions.