Partial Equilibrium Model Research Articles

Rising protectionism and foreign direct investment

AbstractThis paper investigates the impact of the changing international investment regime on foreign direct investment (FDI). Since the late 2000s, hundreds of international investment agreements (IIAs) have been renegotiated or terminated. We study the impact of these shifts in the global investment regime using a novel FDI dataset based on transaction-level investment data and detailed information on IIA provisions. Relying on a stand-alone partial equilibrium modeling framework, we hypothesize that rising protectionism in IIAs increased investment frictions and harmed FDI. We then use a parsimonious three-way gravity framework to test the hypothesis. The empirical evidence shows that reformed and newly enforced IIAs have no impact on FDI flows. Decreasing investment openness in recently implemented IIAs is the driving mechanism behind these findings. We also show that the effects of IIA termination differ by FDI type, being more pronounced for brownfield than greenfield FDI and larger for horizontal than vertical FDI. Lastly, we show significant treatment heterogeneity across industries, with capital-intensive sectors benefiting more from IIAs than labor-intensive ones. Our findings highlight the need to reconsider the benefits and costs of IIAs under an increasingly protective international investment regime.

Speciation Controls the Kinetics of Iron Hydroxide Precipitation and Transformation at Alkaline pH.

The formation of energetically favorable and metastable mineral phases within the Fe-H2O system controls the long-term mobility of iron complexes in natural aquifers and other environmentally and industrially relevant systems. The fundamental mechanism controlling the formation of these phases has remained enigmatic. We develop a general partial equilibrium model, leveraging recent synchrotron-based data on the time evolution of solid Fe(III) hydroxides along with aqueous complexes. We combine thermodynamic considerations and particle-morphology-dependent kinetic rate equations under full consideration of the aqueous phase in disequilibrium with one or more of the forming minerals. The new model predicts the rate of amorphous 2-line ferrihydrite precipitation, dissolution, and overall transformation to crystalline goethite. It is found that the precipitation of goethite (i) occurs from solution and (ii) is limited by the comparatively slow dissolution of the first forming amorphous phase 2-line ferrihydrite. A generalized transformation mechanism further illustrates that differences in the kinetics of Fe(III) precipitation are controlled by the coordination environment of the predominant Fe(III) hydrolysis product. The framework allows modeling of other iron(bearing) phases across a broad range of aqueous phase compositions.

A multi-commodity partial equilibrium model of imperfect competition in future global hydrogen markets

Techno-economic studies are investigating procurement costs of hydrogen and related derivatives across various international trade routes. However, the strategic behavior of exporters is rarely considered in this context, despite similar behavior frequently observed in the fossil fuel world and market characteristics indicating some potential. This work introduces a novel techno-economic model of oligopolistic trade tailored around the value chain of potential future global hydrogen markets. It is formulated as a mixed complementarity problem with a convex reformulation, allowing to solve both competitive and oligopolistic equilibria much beyond the capabilities of traditional complementarity models. Illustrative results show that assuming perfectly competitive price formation in early phases of future global hydrogen markets may lead to overly optimistic hydrogen price projections. This is especially the case within Europe, Japan, and South Korea. In contrast, strategically withholding quantities in export may decrease prices for some domestic markets.

Which decarbonization policy mixes are better for China's power sector? A simulation balancing aggregate abatement effects and economic impacts

The decarbonization policies are currently being planned or implemented worldwide, particularly for emerging economies such as China. When the government designs a preferred decarbonization policy mix, both environmental and economic impacts should be considered. This paper focuses on decarbonization policy mixes in China's power sector, including renewable electricity subsidies (ES), tradable green certificates (TGC), and two carbon pricing instruments. An integrated model combining a partial equilibrium model and an input-output framework was constructed to investigate their abatement effects and economic impacts. The results show that the combination of multiple decarbonization policies can achieve greater emission reduction or lower economic losses compared to implementing them separately. The mix of carbon pricing and TGC shows the least economic losses; the mix of carbon pricing, ES, and TGC achieves maximum abatement effect. A narrow focus on carbon emission reduction would hinder the economic development. The combination of multiple decarbonization policies can trigger more substantial variations in the supply chain of the power sector than their individual implementation. Those policy mixes including carbon tax may achieve lower carbon emissions and economic losses compared to those including a carbon emissions trading market. Therefore, policymakers should conduct a comprehensive simulation of the multiple impacts of policy mixes before implementing them, encompassing both direct impacts on the power sector and indirect impacts on its upstream sectors.

Carbon border adjustment mechanism, carbon pricing, and within-sector shifts: A partial equilibrium approach to Vietnam's steel sector

Carbon pricing has recently gained further momentum from the European Union (EU)'s plan for the Carbon Border Adjustment Mechanism (CBAM). The CBAM aims to align the greenhouse gas (GHG) emission costs in imported products with those within the EU. CBAM will affect foreign producers in targeted sectors, incentivizing them to employ low-emission technology, and encouraging trading partners to implement carbon pricing akin to the EU's. Our study assesses the potential impact of the CBAM and Vietnam's carbon pricing on the country's steel sector, using a multi-technology, multi-trade-partner partial equilibrium model. The results suggest that the CBAM could significantly reduce Vietnam's steel exports to the EU while it is not sufficient to significantly shift production from high-emission to low-emission steel production. However, CBAM may nudge Vietnam's carbon pricing, which can drive a substantial transition from high-emission to low-emission production and accelerate the transition to clean energy, depending on the level of carbon price. Our study results provide important insights for energy and climate policy discussions in relation to carbon border adjustment mechanisms and carbon pricing.

Mitigating greenhouse gas emissions from the cattle sector: Land‐use regulation as an alternative to emissions pricing

AbstractReducing animal‐based food production would not only reduce agricultural greenhouse gas emissions but also free land that could sequester carbon. We examine the efficiency of a subsidy to cattle farmers for setting aside land for natural ecosystem regeneration. We develop a partial equilibrium model of the cattle sector that integrates land use, greenhouse gas emissions, and animal feeding. We compare the subsidy to alternative policies: a meat tax and a standard on animal feeding. We identify the conditions under which the subsidy is the best alternative to these other second‐best policies. The efficiency of the subsidy lies in its effects on both the extensive margin (reduced quantity of meat) and the intensive margin (production intensification, which reduces both the emission and land‐use intensities of meat). An empirical application to France, where spontaneous regeneration corresponds mostly to forest regrowth, shows that the subsidy dominates the other alternative policies considered for a wide range of parameter values but is sensitive to carbon leakage when the economy is open to trade.

A new model for comprehensively evaluating the economic and environmental effects of vehicle-to-grid(V2G) towards carbon neutrality

Vehicle-to-grid (V2G) technology enables electric vehicles (EVs) to serve as flexible load storage resources, which is expected to play a pivotal role in pursuing carbon neutrality. However, existing studies on the effect of V2G at different stages of carbon neutrality is not sufficient, and there is a lack of discussion on the optimal adoption period for V2G in the context of electricity marketization trading. To fill this gap, a new methodology is proposed in this study to analyze multi-dimension effects of V2G towards carbon neutrality. The model is a novel attempt of applying partial market equilibrium model to depict the interaction between electricity suppliers and V2G adopters. By applying in a China's case, the results demonstrate that: (1) EVs with V2G can substitute 22.2 %–30.1 % energy storage and accelerate the phase-out of coal-fired power. (2) V2G can effectively mitigate electricity price fluctuations, moreover, more fast charging infrastructure will strengthen such effect. (3) V2G only become attractive when renewable energy penetration rate reaches 80 %, otherwise, it cannot effectively reduce the total social cost and carbon emission. (4) In the carbon neutrality scenario with limited emission, the emission reduction effect of V2G is weakened, however, its economic benefit keeps increasing.

Emissions taxes under double-sided environmental externalities

It is well established that if a polluter exercises market power, the optimal emission tax should be set below the Pigouvian level, i.e., the marginal damage of pollution. In this paper, we show that relying on this intuition can be misleading if pollution is generated by both production and consumption. Specifically, we build a partial equilibrium model based on a monopoly power exerted over a final product, where the production and consumption of this product impose an environmental externality. We find that the first best can be attained by a combination of taxes on pollution from production and consumption, where the tax on the polluting monopoly is set precisely at the Pigouvian level, whereas the tax on (price-taking) consumers is set below the Pigouvian level.

Changes in the Trade Pattern in China Under the RCEP: An Analysis of Trade Creation and Diversion Using the SMART-WITS Model

The Regional Comprehensive Economic Partnership (RCEP), one of the globe's most expansive free trade agreements (FTAs), has profoundly influenced its member countries' trading patterns. This fact is especially critical for a major economic powerhouse such as China. Understanding its trade creation and trade diversion within the RCEP context can facilitate successful formulation strategies and result in effective economic policies. In this study, we utilize the World Integrated Trade Solution Software for Market Analysis and Restrictions on Trade (WITS-SMART), a partial equilibrium modeling tool, on both state-level and industrial-tier tariff reductions under two distinct scenarios. Our findings confirm that China will benefit from impactful trade results across all RCEP members. Looking from industry point of view: machinery, chemicals, metals sector together with plastics and rubber production are projected to enjoy maximum rewards through increased trade creation and diversion opportunities from Japan and Korea. On the contrary, Australia and ASEAN have the greatest influence on the animal and vegetable sector. This crucial understanding creates strategic indicators that aid in evaluating the most appropriate alignments to harness the untapped potential in the RECP domain.

Impact of Contracts for Differences for non-carbon electricity generation on efficiency of electricity market

In response to the recent energy crisis, the European Commission proposed two-way Contracts for Differences (CfDs) to secure renewable energy investments and protect consumers. The proposed CfDs, however, raised concerns regarding the potential impact on electricity prices. This study examines the effects of various CfD design elements on day-ahead electricity prices, welfare, and renewable energy production. Using a partial equilibrium model of an international electricity market including thirteen European countries, we find a trade-off between stimulating renewable electricity producers to respond to negative prices, and ensuring producer certainty. We also show potential market distortions for CfDs with longer-term reference prices, particularly when strike prices deviate from expectations. Additionally, our study underscores the interactions among various players in the electricity market, in particular storage operators and international traders, and how these interactions can mitigate potential distortions from CfDs. Therefore, policymakers should carefully consider the design elements of CfDs, and weigh the promotion of renewable energy production against the efficiency of markets. Moreover, a proper reference price should be selected, to avoid further increasing electricity prices in periods with high electricity prices.

African food system and biodiversity mainly affected by urbanization via dietary shifts

The rapid urbanization in Africa profoundly affects local food and ecological systems. According to earlier research, urbanization may cause food production and biodiversity losses as agricultural or natural lands are absorbed by expanding cities. Land-use displacement effects may buffer agricultural production losses or may lead to additional biodiversity losses but are often overlooked. Moreover, impacts of dietary changes associated with urbanization are rarely considered. To address this, we combined spatially explicit projections of African urban area expansion with observed rice consumption shifts to inform a partial equilibrium model (the Global Biosphere Management Model). We demonstrate the importance of displacement effects to identify potential food production or biodiversity issues until 2050 and argue for their integration in land-use planning and policymaking across spatial scales. We identify that because of agricultural displacement, the impact of urban area expansion on food production losses is probably limited (<1%)—at the cost of additional losses of natural lands by 2050 (up to 2 Mt). We also show that considering dietary shifts associated with urbanization increases rice consumption, production (+8.0%), trade (up to +2 Mt of required import) and agricultural methane emissions (up to +12 MtCO2-equivalent yr–1), thereby underscoring the need for a systems approach in future sustainability studies.

Factors Determining the Average Price Level: A Combined Microeconomic and Macroeconomic Approach

We analyze various determinants of the average price level using a strictly mathematical approach. Starting with the microeconomic perspective, we review the effect of demand shifters such as consumer income and the level of advertising on the average price level in a simple partial market equilibrium model. Then, we discuss the effect of supply shifters such as the exogenous tax level, worker wage, rental rate, and technology. We use implicit differentiation and Jacobian determinants. While government spending triggers inflation, taxes have the opposite effect. This is consistent with Keynesian theory. Money supply increases national income and prices while reducing the equilibrium interest rate. Therefore, money supply has pro-inflationary effects. The effect of money demand is the opposite—it increases the equilibrium interest rate, thereby lowering national income and prices. Augmenting the model to the level of international trade, we find that exports raise national income, the interest rate, and the average price level, while the effect of imports is just the opposite. Government spending raises the exchange rate while continuous inflation lowers it.

Managing Forests for Biodiversity Conservation and Climate Change Mitigation.

We include biodiversity impacts in forest management decision making by incorporating the countryside species area relationship model into the partial equilibrium model GLOBIOM-Forest. We tested three forest management intensities (low, medium, and high) and limited biodiversity loss via an additional constraint on regional species loss. We analyzed two scenarios for climate change mitigation. RCP1.9, the higher mitigation scenario, has more biodiversity loss than the reference RCP7.0, suggesting a trade-off between climate change mitigation, with increased bioenergy use, and biodiversity conservation in forests. This trade-off can be alleviated with biodiversity-conscious forest management by (1) shifting biomass production destined to bioenergy from forests to energy crops, (2) increasing areas under unmanaged secondary forest, (3) reducing forest management intensity, and (4) reallocating biomass production between and within regions. With these mechanisms, it is possible to reduce potential global biodiversity loss by 10% with minor changes in economic outcomes. The global aggregated reduction in biodiversity impacts does not imply that biodiversity impacts are reduced in each ecoregion. We exemplify how to connect an ecologic and an economic model to identify trade-offs, challenges, and possibilities for improved decisions. We acknowledge the limitations of this approach, especially of measuring and projecting biodiversity loss.

Mitigating environmental impacts of food consumption in the European Union: Is the power truly on our plates?

In the context of the sustainable use of our planet's resources, there is a pressing need for environmentally friendly diets. Moreover, health issues linked to inadequate nutrition are rising, further emphasising the need for more balanced diets. The aim of the planetary health diet developed by the EAT-Lancet commission is to sustainably feed 10 billion people in 2050 while not exceeding planetary limits. According to these guidelines, the EU should reduce red meat intake by 80 % and multiply legume intake by 15. This significant shift from animal to plant-based proteins could modify trade partnerships and EU dependency on plant-based proteins for animal feed, currently discussed within the EU protein strategy. This study evaluates land use changes and environmental consequences of this change in dietary patterns by applying a consequential life cycle assessment approach combined with an agri-economic model, additionally assessing if this diet shift could help to achieve EU Green Deal targets. For this simulation, the partial equilibrium model CAPRI was used, which is a global agricultural market model focusing on Europe, including bilateral trade worldwide. We found that the diet shift results in gaps between domestic demand and supply which are compensated by increased imports of legumes and additional exports of red meat from the EU due to an increased demand for red meat in non-EU countries, as a consequence of decreased red meat prices. Land use changes within NUTS-2 regions indicate broad disparities depending on regional specialisation and profitability. The results from our life cycle assessment show limited benefits for most environmental impact categories within the EU given the considerable change in diets. GHG emissions from the agricultural sector would be reduced by 9 %, representing 4 % of the change needed to achieve overall EU GHG emission targets i.e., a reduction of 55 % by 2030 compared to 1990 levels. Yet, the mitigation potential allocated to EU production of shifting diets could be greater if international trade were not offsetting expected local environmental benefits. Indeed, if EU red meat and animal feed production were reduced proportionally to the demand shift, domestic legume production could hypothetically be extended in the available agricultural areas coming along with improvements in all environmental impact categories. Scientific contribution and media regularly point out the significant influence of individual consumer behaviour as an impulse for change: “the power is on our plates”, while the results of our simulations show that this holds only to a limited extent. To minimise environmental pollution, strong supply-side policies are needed to complement the power on the consumers' plates.

U.S. monetary policy: The pushing hands of crude oil price?

This paper uses the bootstrap rolling-window Granger causality method to investigate the relationship between U.S. monetary policy (UMP) and crude oil price (COP). The method addresses the limitations of ignoring the instability of coefficients in the previous literature and supports the partial equilibrium model from the perspective of the time domain, which enriches the existing literature. The finding reveals a positive effect from COP to UMP, implying that the unexpected rise in COP may push UMP from expansionary into restrictive since the rising COP increases the U.S. inflation pressure. Meanwhile, the economic evidence shows that UMP has a negative effect on COP, which implies that expansionary monetary policy increases the rising pressure on COP. This finding is consistent with the partial equilibrium model, which states that UMP specifically influences COP, including consumption channels and financial channels. Specifically, the expansionary monetary policy may reduce companies' investment costs and stimulate investment and consumption, increasing the demand for crude oil and pushing COP. Given the critical role played by the monetary policy and COP in the U.S., the detailed understanding derived from the relationship between the variables may help the investors and policymakers forecast the energy price trend and adjust the policy strategies promptly.

Marketing logistics support for the export of cereals from Ukraine under the conditions of marital state

The research paper aims to improve the marketing logistics processes to support grain export supplies from Ukraine during martial law conditions. Research methodology. The research was based on the dialectical method of cognition, fundamental economic theory, logistics, and marketing. It also drew from scientific works of domestic and foreign scientists on the issues of marketing logistics and the formation of supply chains for agri-food products. The research utilized a wide range of general and specialized methods, including in-depth monographic study of assigned tasks, theoretical generalization and comparison, historical-retrospective analysis of the development of marketing, sales, and logistics management, functional-cost and statistical analysis, heuristic assessment and analysis of logistics processes in the agricultural sector, correlation-regression analysis, and graphic representation of research results and economic trends. Research results. The critical aspects of the influence of Russian military aggression on essential logistics functions and costs for logistical support of export supplies of corn from Ukraine, as well as its main competitors, are determined based on the application of the Aglink-Cosimo economic-mathematical recursive-dynamic partial equilibrium model. Elements of scientific novelty. Using the Aglink-Cosimo model, we developed several scenarios to predict the impact on the harvest and export levels of all crops in Ukraine and the level of wheat exports from Ukraine in 2022/23 MR and world wheat prices. If Ukraine loses its export opportunities completely, it will result in a 19% increase in the world price of wheat. Practical relevance. The practical significance of the results is the development of science-based proposals for improving marketing logistics support for agricultural enterprises specializing in corn-producing for grain. Keywords: marketing logistics, export, logistics supply chains, grain crops, corn, logistics costs, alternative logistics routes, Grain Corridor, Aglink-Cosimo economic-mathematical model.

US-China trade friction and agricultural nitrogen loss in China

Agricultural production, trade and environmental quality are interdependent. The US and China have been the world largest trade partners. However, trade tensions and interest in protectionist policies intensified in recent years. We use a price endogenous partial equilibrium model to systematically examine the impact of increased Chinese tariff on agricultural imports from the US on nitrogen (N) loss in China. The results show that a 25% tariff on US soybean imports increases the acreage of major crops in China by 1.37%. Although aggregate crop acreage increases, the impact on cumulative nitrogen fertilizer uses and the corresponding N loss from cropland is not significant as less N-intensive soybean acreage replaces some of the more N-intensive crops like wheat. However, our estimates show significant heterogeneity in N loss across Chinese provinces, ranging from 0.05% to 2.97% increase. These results identify provinces where remediation measures may be needed to effectively manage the potential increase in nitrogen loss associated with greater soybean production.

Impact of fertilizer and pesticide reductions on land use in China based on crop-land integrated model

While chemical fertilizers and pesticides have significantly enhanced crop productivity per unit of land in China, the excessive utilization of these chemicals has led to a range of environmental issues that are not conducive to the sustainable development of China’s agriculture. Controlling the use of fertilizers and pesticides in crop cultivation is therefore necessary and has been adopted as an action plan since 2015 in China. However, the effects of fertilizer and pesticide reductions have not been systematically investigated. This paper explores how yields and land use for rice, wheat, corn, and soybean cultivation shift when reducing their fertilizer and pesticide inputs using China’s provincial crop-land integrated partial equilibrium model (the CPMCL model). Simulation results for different scenarios show that, among the studied crops, rice and wheat exhibit greater adaptability than corn and soybeans. Reducing the use of fertilizers and pesticides within the interval from 0% to 3.5% may increase the total demand of land resources for crop production from 0.220% to 4.21%. Limited land resources will be allocated to more profitable crops to maximize output, which means the land use for wheat production may increase over 20% while for rice, corn and soybean may decrease around 4% under the shock of fertilizer and pesticide reductions. Merely reducing fertilizer and pesticide inputs in crop cultivation may exacerbate the conflict between crop production and land resource conservation in China, which means the technology and efficiency of fertilizer and pesticide use needs to be improved. The findings of this paper can help formulate more province-specific and crop-targeted plans to properly reduce fertilizer and pesticide use, thus promoting sustainable land use while ensuring food security and protecting the environment.

Spill-over effect of India cotton trade on labour and household income

India is one of the world’s largest producers and exporters of cotton, the major raw material for the textile industry, employing more than 4.5 crore people in the country. The present study aimed to analyse the impact of adverse trade in Indian cotton sector on labor and household income by employing Social Analysis Matrix based multiplier model and partial equilibrium model. Indian textile sector has strong backward linkages with primary input multiplier and household income multiplier of 4.13 and 3.44, respectively and, thus transmitting external impacts to the labour and household income. The sector has a higher multiplier effect of 10.17 on production activities, of which the impact on the cotton sector is 0.126. Fall in export and domestic demand for clothing and apparel in addition to movement restrictions around the world during the period 2020-2021, disrupted cotton supply chain and consequent fall in demand and price of the commodity. Simulations for the increase in carry-over stock and reduction in domestic consumption and cotton exports revealed that limiting the commodity's production and supply would retain the market equilibrium and increase the domestic price to the advantage of the farmers. The study reveals that dynamics in the Indian cotton sector trade significantly impacted labour and household income. Appropriate planning for areas under cotton cultivation and alternate procurement mechanisms during emergency situations would stabilise the Indian cotton economy.

Evaluating Impacts of Subsidy Removal in the Tunisian Bakery Sector

Abstract The paper analyzes the economic impact of the gradual removal of the subsidy in the bakery sector in Tunisia. A partial equilibrium model under imperfect competition in the soft wheat market is developed to evaluate the impact of the gradual removal of the subsidy in the Tunisian bakery sector. Two scenarios are simulated. In the first scenario, the subsidy is eliminated over a three years, starting in 2024. Scenario 2 mirrors scenario 1, but assumes a 5 % annual increase in the world price of soft wheat from 2024 to 2026, accounting for the anticipated depreciation of the Tunisian currency. The results show that the overall welfare would increase under both scenarios 1 and 2, and range between 443.9 and 472.2 million dinars by 2026, respectively. Based on the results of the simulations, to mitigate the negative impact of subsidy removal, it is strongly recommended to extend the food subsidy reform to a five-year period, prioritizing the protection of low-income segments. In addition, abolishing the Cereal Board’s regulatory role and moving to a competitive farm-level market would enhance competition, attract investment, and improve productivity and efficiency. However, a new cereal policy should be implemented to achieve objectives of food security, improved productivity, sustainability, and resilience.