Single Country Computable General Equilibrium Research Articles

Economy-wide effects of reducing the time spent for water fetching and firewood collection in Ethiopia

BackgroundWater fetching and firewood collection are among home activities that are part of the daily routine of many households in rural Ethiopia. Households travel long distances and spend large amounts of time every day for collecting water and firewood. Fetching water and firewood reduce labor available for market related activities such as agriculture that affects production and productivity of these sectors negatively. Better access to water facility and energy efficient technology (such as improved stoves) is expected to release labor for market related activities that can have economy-wide impacts. The objective of this study is to investigate the economy-wide effects of access to water facility and improved stoves.MethodsThe study uses the updated 2004/05 Social Accounting Matrix (SAM) of Ethiopia. The SAM is modified to account for a detailed representation of water fetching, firewood collection and leisure activities and commodities. This study applies a single country Computable General Equilibrium (CGE) model to the updated SAM of Ethiopia. The simulation scenario is a 50% increase in the Total Factor Productivity (TFP) of both water fetching and firewood collection activities due to better access to water infrastructure and cooking improved stoves.ResultsThe findings of the study show that better access to drinking water supply and improved stoves reduces labor time spent for water fetching and firewood collection. The released labor from water fetching and firewood collection partly reallocated to leisure consumption and partly to market related activities. Those freed labors that are reallocated to marketed sectors including agricultural and non-agricultural activities leads to increase employment and enhance domestic production. Better access to drinking water and improved stoves also enhances household welfare. Households that allocate a relatively large proportion of labor to water fetching and firewood collection gain relatively more welfare. Macroeconomic indicators such as GDP, total domestic production, absorption, and imports are also positively affected due to improved access to water and energy efficient technology.ConclusionsIt is helpful to recognize the economic significance of labor released from water fetching and firewood collection in any developing economy with a limited supply of water facility and access to energy technology.

English

The main objective of this study is to investigate the economy-wide effect of improving road transport infrastructure. The study uses the updated and adjusted version of the 2005/2006 social accounting matrix of Ethiopia. The study applies a single country computable general equilibrium model. The simulation scenario is a reduction of trade and transport margin and an increase in the total factor productivity (TFP) of activities that produce trade and transport services due to public investment in road infrastructure (and hence better access to road infrastructure). The simulation results indicate that improving road transport infrastructure reduced the purchaser and supply price of marketed commodities. This facilitates transportation of commodities to the market and stimulates production; leading to an increase in domestic production in agriculture, trade, and manufacturing sector. The simulation results also indicate that expansion of road infrastructure results in welfare improvement among rural and urban households. Furthermore, better road transport infrastructure facilitates investment flow, foreign trade and hence accelerates economic growth (GDP) of the country. Therefore, public investment in road transport infrastructure should be considered as one of the policy pillars in the design of development policy and strategies of Ethiopia. Key words: Road transport infrastructure, trade and transport margin, computable general equilibrium model, social accounting matrix, Ethiopia.

Macroeconomic and distributional impacts of exchange rate devaluation in Ethiopia: A computable general equilibrium approach

In this paper, we simulate the macroeconomic and distributional impacts of exchange rate devaluation in Ethiopia using a dynamic single country Computable General Equilibrium model. We find that although devaluation helps exports to be more competitive in the short term, thereby increasing export earnings, over the long term the policy is found to have a contractionary and inflationary impact in a developing country like Ethiopia. It also comes at the cost of a reduction in household welfare and investment. In terms of distributional impact, the policy simulation result suggests that devaluation disproportionately affects urban households than rural households in Ethiopia given the nature of their consumption basket.

English

South Africa’s agricultural sector is comprised of livestock, field crops and fruit in their order of size, in gross value terms. Agriculture in South Africa accounts for a relatively low share in the economy (3% of gross domestic product - GDP), 6% of employment and about 10% of exports (over R144 billion in 2015). Currently (2015/16), South Africa is experiencing the worst drought in over 100 years, which has resulted in significant effects on agriculture, with eight of the nine provinces being declared disaster areas. The motivation of the study was to understand the severity of drought on agriculture as well the impact on the whole economy (to quantify the economy-wide effects/losses emanating from the drought). To quantify these effects a single-country computable general equilibrium (CGE) model was used. Four scenarios were developed: Impact of field crops losses; impact of livestock losses; impact of aggregated agriculture losses; and impact of aggregated agriculture losses plus drought relief. The analysis shows that all scenarios led to a negative impact on GDP, employment and exports while the drought relief was found to have saved some jobs, albeit not significantly. Key words: Drought, computable general equilibrium (CGE) model, field crops, livestock and fruit, GEMPACK.

Changing Import Preferences and Their Impact on The Effects of Trade Liberalization

In the last two decades, the dependence of Taiwan’s manufacturing production on imported intermediate inputs has steadily risen. Meanwhile, the market share of imported consumable manufacture products has also increased. The steady rise of both import shares may not be explained by price fact or since the relative import prices have shown no decreasing trend. The scenario of constantly buying more imported goods when they are not cheaper can be treated as a preference change in favor of imported goods, which may be caused by the popularity of outsourcing, increasing product varieties and persistent trade barriers, as literatures indicated. Traditional macroeconomic models primarily consider the price mechanism in their import demand estimates, with no concern for changes in import preferences. Neglecting changing import preferences in a rapid globalization environment may yield biased empirical results. In this article, we incorporate the import preference factor into a single-country Computable General Equilibrium (CGE) model and use it firstly to quantify the scale of preferences change and then to test how the preferences change affects the effects of trade policy. The empirical results with and without the concern of import preferences change are compared to yield the scale of bias caused by neglecting the change.

Impact of trade liberalization and world price changes in Bangladesh: a computable general equilibrium analysis

The paper analyzes the impact of partial liberalization of trade and changes in world prices of agricultural commodities in Bangladesh using single country Computable General Equilibrium (CGE) model. Since the agricultural sector is sensitive to overall employment, household welfare and food security, the analysis focuses on the changes in agricultural production, consumption, household income and welfare. The results show that trade liberalization increases the welfare of all household groups while world market price increases decrease welfare. It means that although trade liberalization generates a welfare increase for households but this is dependent on the relative level of world commodity prices. Our results are based on the analysis of aggregate household groups, so it may be of future research interest to extend the model with more detailed household groups using a CGE-micro simulation approach.

Changing Import Preferences and Their Impact on The Effects of Trade Liberalization

In the last two decades, the dependence of Taiwan’s manufacturing production on imported intermediate inputs has steadily risen. Meanwhile, the market share of imported consumable manufacture products has also increased. The steady rise of both import shares may not be explained by price fact or since the relative import prices have shown no decreasing trend. The scenario of constantly buying more imported goods when they are not cheaper can be treated as a preference change in favor of imported goods, which may be caused by the popularity of outsourcing, increasing product varieties and persistent trade barriers, as literatures indicated. Traditional macroeconomic models primarily consider the price mechanism in their import demand estimates, with no concern for changes in import preferences. Neglecting changing import preferences in a rapid globalization environment may yield biased empirical results. In this article, we incorporate the import preference factor into a single-country Computable General Equilibrium (CGE) model and use it firstly to quantify the scale of preferences change and then to test how the preferences change affects the effects of trade policy. The empirical results with and without the concern of import preferences change are compared to yield the scale of bias caused by neglecting the change.

Simulated water productivity in Gansu Province, China

Economic value of water and economic analysis of water use management in Gansu Province of China have attracted widespread public attention. With the socioeconomic development, research on water resources has become more important than before. In this study, we define “water productivity” as the changes of economic production outputs of sectoral activities in every cubic meter of water input, which is also the technical coefficient of water resource use in each sector. According to Computable General Equilibrium (CGE) framework, based on the Input–Output Table 2007 and water resources bulletin of Gansu Province, we introduced the water into the ORANI-G (A Generic Single-Country Computable General Equilibrium model) model through the nested constant elasticity of substitution (CES) production function to analyze the changes of economic productions caused by water supply changes. We then examined water productivity in different sectors. Empirical results showed that current water productivity is underestimated. Agricultural water productivity is lower than that of the secondary and tertiary industries, even although agricultural water use is the largest part of water use in Gansu Province, and therefore improving agricultural water productivity can greatly mitigate the water shortage. Simulation results indicate that industrial transformation and development of water-saving industries will also mitigate water scarcity. Moreover, sensitivity analysis shows that the empirical results are robust under different scenarios. The results also show that higher constant elasticity of substitution rate (CES) between water and other production factors will contribute to sustainable development.

Effects of international climate policy for India: evidence from a national and global CGE model

AbstractIn order to significantly reduce global carbon emissions, it is necessary also to control CO2 emissions in fast growing emerging economies such as India. The question is how the Indian economy would be affected by including the country in an international climate regime. In this analysis we soft-link a global and a single-country computable general equilibrium model in order to be able to capture distributional issues as well as international repercussions. We analyze different options of transferring revenues from domestic carbon taxes and international transfers to different household types and the effects of different assumptions on exchange rates on transfer payments. Our results show (i) that welfare effects can differ significantly for different household types, which is generally ignored in analyses with global models, and (ii) that these effects are significantly influenced by international price repercussions and by accounting for transfers from international permit sales which is generally ignored in single-country models.

International price transmission in CGE models: How to reconcile econometric evidence and endogenous model response?

The importance of empirically analyzing the transmission of international prices to and their impacts on domestic markets is growing particularly since the 2006–2008 food price hikes. However, the field is dominated by econometric Price Transmission Analysis (PTA) but surprisingly disconnected from analyses based on simulation models such as Computable General Equilibrium (CGE) models. The missing reconciliation among these tools could be due to PTA often being concerned with high frequency data and short-term adjustment processes, which does not reconcile well with the annual data of CGE analyses; different research teams in econometric time series analysis and CGE modeling with typically little overlap; and the endogeneity of price transmission in CGE models. Due to this endogeneity, the calibration of CGE models to empirically observed price transmission is not straightforward, as an infinite combination of model parameters and specifications allows for reaching a certain level of price transmission. This paper aims at paving the way for the integrated use of PTA and CGE models by analyzing how a given degree of price transmission from the international to the domestic market, which may be determined empirically e.g. based on a vector error correction model, can be met in a single country CGE model. We examine and validate seven hypothetical determinants including structural characteristics of the model, the parameterization of behavioral functions and properties of the sectors concerned. The findings of this paper support controlling the pass-through of prices from the international to the domestic market in CGE models.

Relaxing Israeli restrictions on Palestinian labour: Who benefits?

Palestinian workers have been employed in low-skilled jobs in Israel for decades. The second Intifada, from 2000, increased border restrictions severely and sharply reduced employment possibilities in Israel for Palestinians, increased unemployment and reduced income in the West Bank. Israeli employers responded by increasing the number of foreign workers, mostly from Asia. Growing unemployment among Israeli unskilled workers caused Israel to impose quotas on the employment of foreigners. This study evaluates the effects of reducing movement and access restrictions between Israel and the West Bank. The study uses a single country computable general equilibrium model, adapted to a Social Accounting Matrix of Israel for the year 2004, to simulate the effects of different Israeli labour policy regimes and to identify the inter sectoral, whole economy and distributional implications.

Estimating the economic impact of pandemic influenza: An application of the computable general equilibrium model to the UK

There is concern regarding the impact that a global infectious disease pandemic might have, especially the economic impact in the current financial climate. However, preparedness planning concentrates more upon population health and maintaining a functioning health sector than on the wider economic impact. We developed a single country Computable General Equilibrium model to estimate the economic impact of pandemic influenza (PI) and associated policies. While the context for this development was the United Kingdom, there are lessons to be drawn for application of this methodology, as well as indicative results, to other contexts.Disease scenarios were constructed from an epidemiological model which estimated case fatality rates (mild, moderate and severe) as 0.06%, 0.18% and 0.35%. A clinical attack rate of 35% was also used to produce influenza scenarios, together with preparedness policies, including antivirals and school closure, and the possible prophylactic absence of workers.UK cost estimates (in Sterling) are presented, together with relative percentage impacts applicable to similar large economies. Percentage/cost estimates suggest PI would reduce GDP by 0.3% (£3.5bn), 0.4% (£5bn) and 0.6% (£7.4bn) respectively for the three disease scenarios. However, the impact of PI itself is smaller than disease mitigation policies: combining school closure with prophylactic absenteeism yields percentage/cost effects of 1.1% (£14.7bn), 1.3% (£16.3bn) and 1.4% (£18.5bn) respectively for the three scenarios. Sensitivity analysis shows little variability with changes in disease parameters but notable changes with variations in school closure and prophylactic absenteeism. The most severe sensitivity scenario results in a 2.9% (£37.4bn), 3.2% (£41.4bn) and 3.7% (£47.5bn) loss to GDP respectively for the three scenarios.

The macroeconomic impact of pandemic influenza: estimates from models of the United Kingdom, France, Belgium and The Netherlands

The 2003 outbreak of severe acute respiratory syndrome (SARS) showed that infectious disease outbreaks can have notable macroeconomic impacts. The current H1N1 and potential H5N1 flu pandemics could have a much greater impact. Using a multi-sector single country computable general equilibrium model of the United Kingdom, France, Belgium and The Netherlands, together with disease scenarios of varying severity, we examine the potential economic cost of a modern pandemic. Policies of school closure, vaccination and antivirals, together with prophylactic absence from work are evaluated and their cost impacts are estimated. Results suggest GDP losses from the disease of approximately 0.5-2% but school closure and prophylactic absenteeism more than triples these effects. Increasing school closures from 4 weeks at the peak to entire pandemic closure almost doubles the economic cost, but antivirals and vaccinations seem worthwhile. Careful planning is therefore important to ensure expensive policies to mitigate the pandemic are effective in minimising illness and deaths.

Fiscal Policies and Increased Trade Openness: Poverty Impacts in Ecuador

This research quantifies the effects on poverty in Ecuador of bilateral trade liberalization with the U.S. and fiscal changes (value added tax and direct taxes) which seek to compensate tariff revenue losses, so that the government deficit remains constant. This is a very important issue for Ecuador because it adopted the U.S. dollar as its currency in 2000, forgoing the use of monetary and exchange rate policy instruments. This paper highlights labor market effects and fiscal policies as the main mechanisms through which trade impacts poverty. The paper combines a reduced-form micro household income and occupational choice model (using the 2005/6 Ecuadorian household survey) with a standard single-country computable general equilibrium model (employing a 2004 Social Accounting Matrix). A sequential approach that simulates the full income and distributional impact of trade and tax policies is followed. The impact of these policy changes on the economy is small. Indigence and income distribution effects are small but positive. There are mixed results on poverty. The best poverty reduction outcomes are attained when only direct taxes are used for mak-ing up tariff revenue losses and the worst when a flat VAT rate is employed, including the elimination of current VAT exemptions (mostly for agricultural goods). A key contribution of this research is to illustrate the significance for poverty of policy choices available to the government.

The potential impact of the Doha Development Agenda on the South African economy: liberalising OECD agriculture and food trade

This article reports the results of a static computable general equilibrium (CGE) model on the possible liberalisation of agriculture and food trade in the OECD countries. Liberalisation of trade was simulated assuming a reduction in import tariffs, the tax rate on factor use and export subsidies in four steps of 25% points each. Such simulations were run in the GLOBE model then adjusted and used as a policy shock to the PROVIDE model. The results show that the weighed average world price (adjusted) changes will range between −19.6 to +3.8% for imports and between −3.0 and +29.7% for exports at 75% liberalisation. The results from the single country CGE model show that the South African economy would respond positively to the world price changes, with government and macro variables showing minimal but positive responses. Household consumption expenditures generally show positive changes, implying increased factor incomes. Not all sectors will be positively affected even though the overall effect is positive.

Fiscal Policies and Increased Trade Openness: Poverty Impacts in Ecuador

This research quantifies the effects on poverty in Ecuador of bilateral trade liberalization with the U.S. and fiscal changes (value added tax and direct taxes) which seek to compensate tariff revenue losses, so that the government deficit remains constant. This is a very important issue for Ecuador because it adopted the U.S. dollar as its currency in 2000, forgoting the use of monetary and exchange rate policy instruments. This paper highlights labor market effects and fiscal policies as the main mechanisms through which trade impacts poverty. The paper combines a reduced-form micro household income and occupational choice model (using the 2005/6 Ecuadorian household survey) with a standard single-country computable general equilibrium model (employing a 2004 Social Accounting Matrix). A sequential approach that simulates the full income and distributional impact of trade and tax policies is followed. The impact of these policy changes on the economy is small. Indigence and income distribution effects are small but positive. There are mixed results on poverty. The best poverty reduction outcomes are attained when only direct taxes are used for making up tariff revenue losses and the worst when a flat VAT rate is employed, including the elimination of current VAT exemptions (mostly for agricultural goods). A key contribution of this research is to illustrate the significance for poverty of policy choices available to the government.

The 2003 Mid Term Review of the Common Agricultural Policy: A Computable General Equilibrium Analysis for Ireland

A Computable General Equilibrium (CGE) model of the Irish economy is built and used to analyse the 2003 Mid Term Review (MTR) of the Common Agricultural Policy. The MTR represents significant reform of agricultural policy in the EU, and has generated widespread interest and numerous studies of its anticipated effects. Economists have employed a variety of modelling approaches, encompassing single and multi-country general and partial equilibrium models. This research contributes a dedicated single country CGE modelling analysis of the MTR for Ireland. IMAGE2 is a CGE model with particular emphasis on the agriculture and food processing sectors, and the careful representation of CAP instruments. The database is the most detailed and current CGE database of the Irish economy. Results from the simulation indicate that agricultural activity will decline following the implementation of the MTR. In particular, labour use in the sector will fall, as some agricultural workers seek off-farm employment and others cease to work. Despite the decline in agricultural activity, the continuation of subsidy support ensures that gross value added at factor price is maintained, and even increases slightly in the short run. There is a change in primary factor usage in agriculture, with significant extensification stimulated by the MTR. Within the sector, there are large changes in the composition of agricultural output. Reductions in output of the previously subsidised products, cattle, sheep and cereals, are accompanied by an increase in output of other agricultural goods such as other livestock, fruits and vegetables, and forestry. Advance estimates of agricultural activity in 2005, the first full year of decoupling, indicate that changes in the sector have followed these broad indications.

Product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies

This paper examines the treatment of exports and imports, and external closure rules, adopted in recent single-country computable general equilibrium models of small economies. The paper presents a simple, one-sector analytic model which captures the major features of the multi-sector counterpart used in applied models. The paper derives graphical and algebraic solutions to the model and shows that, unlike some earlier external closures, this one gives rise to a well-behaved, price-taking economy. The model is also useful to illustrate the role of elasticities in popular trade-theoretic models that include traded and non-traded goods.