Spatial General Equilibrium Model Research Articles

Multi-disciplinary seismic resilience modeling for developing mitigation policies and recovery planning

The multi-disciplinary data and information available at a community level comprise the foundation of natural hazard resilience modeling. These data enable and inform mitigation and recovery planning decisions prior to and following damaging events such as earthquakes. This paper presents a multi-disciplinary seismic resilience modeling methodology to assess the vulnerability of the built environment and economic systems. This methodology can assist decision-makers with developing effective mitigation policies to improve the seismic resilience of communities. Two complementary modeling strategies are designed to examine the impacts of scenario earthquakes from a combined engineering and economic perspective. The engineering model is developed using a probabilistic fragility-based modeling approach and is analyzed using Monte Carlo (MC) simulations subject to seismic multi-hazard, including simulated ground shaking and resulting liquefaction of the soil, to quantify the physical damage to buildings and electric power substations (EPS). The outcome of the analysis is subsequently used as input to repair and recovery models to quantify repair cost and recovery time metrics for buildings and as input to functionality models to estimate the functionality of individual buildings and substations by accounting for their interdependency. The economic model consists of a spatial computable general equilibrium (SCGE) model that aggregates commercial buildings into sectors for retail, manufacturing, services, etc., and aggregates residential buildings into a wide range of household groups. The SCGE model employs building functionality estimates to quantify the economic losses. The outcomes of this integrated modeling consist of engineering and economic impact metrics, which are used to investigate mitigation actions to help inform a community on approaches to achieve its resilience goals. An illustrative case study of Salt Lake County (SLC), Utah, developed through an extensive collaborative partnership and engagement with SLC officials, is presented. The results demonstrate the effectiveness of the proposed methodology in quantifying the loss and functional recovery of infrastructure systems, the impacts on capital stock, employment, and household income and the effect of various mitigation strategies in reducing the losses and functional recovery time subject to earthquakes with varying intensities.

Carbon market integration, productivity, and welfare: A quantitative analysis

AbstractChina's carbon market is far from being integrated. This paper studies how carbon emissions reduction and carbon market integration affect China's aggregate productivity and welfare via a quantitative spatial general equilibrium model with as a by‐product of production. We find that (1) were carbon emission rights to be allowed to be traded across regions, (i) if there is no technological growth, China's overall productivity and real GDP would increase by 10.26%, and 27.19% respectively, and welfare would decline slightly by 0.92%; (ii) if the technology grows at the present growth rate, China's total output, real GDP and welfare would increase by 9.97, 38.57, and 7.79%, respectively; (2) were nine regional carbon trading markets integrated, China's overall productivity, real GDP and welfare would increase by 4.35, 29.17, and 7.75%, respectively. Carbon market integration enables China to achieve economic development at a lower cost.

Cross-regional economic impact of carbon emission regulations: A quantitative spatial equilibrium model for China

We develop and quantitatively evaluate a spatial general equilibrium model that incorporates carbon emission regulations. We study the impact of emission regulation on the economies of regions within a country under climate change mitigation goals, and how the impact of emission regulation in one region influences other regions through regional‒sectoral linkages. The model is calibrated using Chinese regional and sectoral data, and several counterfactual exercises are performed. The results indicate that undifferentiated increases in emission regulation across regions have resulted in inter-regional differences in real GDP changes; however, “equity-oriented” regionally differentiated emissions regulations reduce this imbalance. Regarding interactions between regions, negative impacts on the economy are characterized by geographical proximity, whereas positive impacts are not geographically constrained. Sectoral linkages exacerbate the negative economic impacts of emission regulations and widen regional disparities. Additionally, we demonstrate the extended application of our model through two case studies.

Infrastructure and Structural Change in Africa

Abstract Past investments in electricity, Internet, and road infrastructure, in isolation and bundled, have contributed to structural transformation and economic development in Africa. Using new data on the expansion of the road, electricity, and Internet networks over the past two decades, the paper shows that having access to both paved roads and electricity has led to a significant reallocation of labor from agricultural to both manufacturing and services. Adding access to fast Internet has had a major impact on structural change, with an even larger impact on reallocating labor away from agriculture. The paper then uses a spatial general-equilibrium model to quantify the impacts of future regional transport investments, bundled with electricity and Internet investments, on economic development in countries in the Horn of Africa and Lake Chad region.

A spatial macroeconomic analysis of the equity-efficiency trade-off of the European cohesion policy

ABSTRACT In this study we use a spatial dynamic general equilibrium model to analyse the macroeconomic impact of cohesion policy-like investments in nine net beneficiary member states of the European Union. We examine whether or not the objective of reducing regional disparities (equity) prevents the interventions from maximising their impact on national GDP impact (efficiency) by looking at GDP multipliers and interregional spillovers. We find that there may be an equity-efficiency trade-off depending on the characteristics of both the investments made and the targeted regional economies. Moreover, the analysis shows that the growth spillovers from more developed to less developed regions are limited. This implies that, in order to reduce regional disparities, investment must be made in the less developed regions of each country.

The distributional impacts of transportation networks in China

We document that the quality of roads and railroads vary substantially over time and space in China, and neglecting these variations biases the distributional impacts of transportation networks. To account for quality differences, we construct a new panel dataset and approximate quality using the design speed of roads and railroads that varies by vintage, class, and terrain at the pixel level. We then build a dynamic spatial general equilibrium model for multiple modes, transportation routes, and forward-looking migration decisions. Our findings demonstrate that disregarding quality differences leads to a median bias of approximately 31% in estimating real wage growth rates at the prefecture level. Moreover, this bias is non-random and correlates with the initial conditions of the prefectures, resulting in significant errors when predicting the distributional effects of transportation networks.

E-commerce, delivery drones and their impact on cities

E-commerce has gained importance over the last years and the COVID-19 pandemic has further strengthened this development. With the increasing opportunities that novel transport technologies such as cargo drones offer, e-commerce is likely to even become more attractive in upcoming years. This paper therefore analyses the long-run effects of increasing importance of e-commerce and, more specifically, the impact of a shift towards package delivery via drones. Using a polycentric urban spatial general equilibrium model that incorporates the different retail channels, we model the consumer’s choice between local and online shopping. In the case of online shopping, delivery takes place either via drone or via truck. Due to the equilibrium mechanisms, changes in shopping behavior potentially result in different home and work location choices or labor supply choices. The model thus allows assessing the long-run effects of e-commerce and drone delivery, also on related markets such as the markets for land, labor and goods. A numerical simulation of the model shows that each additional retail channel adds welfare and that changes in the shopping channels result in changes in location choices of households and companies.

The geography of mortgage interest deductions

We investigate the heterogeneous impact of the US federal mortgage interest deduction (MID) on households’ location and tenure decisions. We develop a spatial general-equilibrium model featuring non-homothetic preferences in which households can choose whether to claim the MID or a standard tax deduction. Repealing the MID decreases homeownership rates more strongly in central areas because owner-occupiers migrate to the countryside. Welfare increases slightly because positive externalities from less congested housing markets and undistorted tenure decisions outweigh productivity losses in central locations. An increase in standard tax deductions, as implemented in 2018 by the Tax Cuts and Jobs Act, leads to a similar welfare increase.

Analysis of sustainable transformation development patterns and heterogeneity of Chinese cities based on spatial general equilibrium model

Analysis of sustainable transformation development patterns and heterogeneity of Chinese cities based on spatial general equilibrium model

Capital-skill complementarity and regional inequality: A spatial general equilibrium analysis

This paper employs a large scale numerical spatial general equilibrium model featuring capital-skill complementarities in production to study the distributional implications of a capital-augmenting technological shift across regions and skills groups. Similarly to the existing literature, we find a negative relationship between the labour income share and the capital labour-ratio. Our counterfactual shows that the effects are quite uneven across skills and regions, benefiting mostly high-skilled workers at the detriment of the low and the medium skilled. This is particularly so in more developed regions compared with less developed ones. We show that the effects stem from regional initial conditions, and in particular the regional capital–labour ratio, trade linkages and unemployment rates.

Productivity benefits of urban transportation megaprojects: A general equilibrium analysis of «Grand Paris Express»

The «Grand Paris Express» (GPE) reduces road congestion, a negative externality (Walters, 1961; Vickrey, 1963); while inducing job densification, which improves total factor productivity (TFP), the source of a positive externality (Marshall, 1890). To parse out the effects and interaction of these externalities empirically, we use a spatial general equilibrium model treating transportation, output, labor, real estate and land markets. The TFP externality reduces marginal costs and output prices, benefitting consumers, including those importing from the region. Wages and rents increase but only after normalization by an output price index. The unsubsidized TFP externality adds importantly to the GPE's social benefit-to-cost ratio, despite causing fiscal losses from nominal income tax, sales tax and fuel tax revenues. Pigouvian congestion tolling raises long run welfare, and although toll revenue exceeds thrice the GPE's direct cost, it recovers only 62% of the direct cost plus the fiscal losses in the short run, but only 54% in the long run when the fiscal losses are larger. In the presence of distortionary taxation, consumers elsewhere who import from the region, and the unsubsidized TFP externality, charging more than Pigouvian congestion tolls improves overall social welfare but reduces the welfare of the in-region consumers.

Assessing the Regional Economic Ripple Effect of Flood Disasters Based on a Spatial Computable General Equilibrium Model Considering Traffic Disruptions

With growing regional economic integration, transportation systems have become critical to regional development and economic vitality but vulnerable to disasters. However, the regional economic ripple effect of a disaster is difficult to quantify accurately, especially considering the cumulated influence of traffic disruptions. This study explored integrating transportation system analysis with economic modeling to capture the regional economic ripple effect. A state-of-the-art spatial computable general equilibrium model is leveraged to simulate the operation of the economic system, and the marginal rate of transport cost is introduced to reflect traffic network damage post-disaster. The model is applied to the 50-year return period flood in 2020 in Hubei Province, China. The results show the following. First, when traffic disruption costs are considered, the total output loss of non-affected areas is 1.81 times than before, and non-negligible losses reach relatively remote zones of the country, such as the Northwest Comprehensive Economic Zone (36% of total ripple effects). Second, traffic disruptions have a significant hindering effect on regional trade activities, especially in the regional intermediate input—about three times more than before. The industries most sensitive to traffic disruptions were transportation, storage, and postal service (5 times), and processing and assembly manufacturing (4.4 times). Third, the longer the distance, the stronger traffic disruptions’ impact on interregional intermediate inputs. Thus, increasing investment in transportation infrastructure significantly contributes to mitigating disaster ripple effects and accelerating the process of industrial recovery in affected areas.

Economic Loss Assessment for Losses Due to Earthquake under an Integrated Building, Lifeline, and Transportation Nexus: A Spatial Computable General Equilibrium Approach for Shelby County, TN

Earthquakes have caused tremendous losses worldwide. Though unpredictable, comprehensive assessment of their impact on urban areas can facilitate effectiveness in mitigation strategies. This paper builds a spatial general equilibrium (SCGE) model for Shelby County, Tennessee, an area located in the most active seismic zone in the central and eastern U.S. Starting from the building, lifeline and transportation damages, this paper also develops means by which such damages can be integrated into the SCGE model for prompt effect estimation. Using novel approaches to represent substitution and shifting behaviors intra-regionally within the county, the model estimated a total of loss over $8 billion in domestic supply due to a hypothetical earthquake. Compared with the outcomes from the model without these behaviors, the magnitude of the losses is smaller in the model with these behaviors. This implies the resistance, resourcefulness and flexibility from economic resilience, as the level of physical damages do vary intra-regionally. Interestingly, although the percentage of losses in domestic supply varies almost linearly with the percentage loss in physical damage intra-regionally, the losses in employment are relatively evenly distributed. This also emphasizes the importance of the shifting and substitution behaviors which make the model profoundly spatial.

An application of land use, transport, and economy interaction model

Governments need to assess the benefits of transport projects to prioritize investments. It is imperative for governments to have tools that can closely estimate the actual benefits and impacts of investments in significant transport projects.Traditionally, the benefits of a transport project have been estimated by using a transport model, assuming fixed land use for the base and project case in the future. However, this approach cannot measure the impact of land-use changes as residents and businesses relocate to take advantage of lower travel and/or freight costs resulting from the project. Consequently, the benefits of the project may be under or overestimated, depending on its position within the transport network and how it reshapes land use patterns in the future. To overcome this drawback in existing models, this paper firstly presents a literature review of advances in the land use transport interaction model (LUTI), then discusses the development of a LUTI model for Victoria, Australia (VLUTI) by integrating the Victorian Integrated Transport Model with a Spatial Computable General Equilibrium model (SCGE). The land use component (SCGE) was developed to represent a highly resolved zone system, detailed classifications of occupations and industries, and spatial interactions via commuting, and trade in goods and services, and thus enables VLUTI to simulate a detailed and nuanced picture of land use and transport interactions in a complete economic environment.The literature review also indicates limited research in applying a LUTI to estimate land use change benefits. This paper presents an application of VLUTI by looking at differences in the conventional transport benefits under both static and dynamic land use scenarios. In the static method, the land use in the project case is unchanged from the base case. In the dynamic case, the land use in the project case, at a future point in time, is endogenously adjusted within VLUTI. It presents a method to correct, in the dynamic case, the benefits as estimated by the rule of a half, which usually assumes static land use. The paper concludes with suggestions for further developments and improvements of VLUTI such as incorporating an activity-based transport model and an environmental model to progress toward an integrated land-use, transport, economy, and environment model capable of assessing the full impact of a transport project in a holistic way.

The ripple effects of large‐scale transport infrastructure investment

AbstractWe analyze the general equilibrium effects of an asymmetric decrease in transport costs, combining a large‐scale spatial dynamic general equilibrium model for 267 European NUTS‐2 regions with a detailed transport model at the level of individual road segments. As a case study, we consider the impact of the road infrastructure investments in Central and Eastern Europe of the European Cohesion Policy. Our analysis suggests that the decrease in transportation costs benefits the targeted regions via substantial increases in gross domestic product (GDP) and welfare compared to the baseline, and a small increase in population. The geographic information embedded in the transport model leads to relatively large predicted benefits in peripheral countries such as Greece and Finland, which hardly receive funds, but whose trade links cross Central and Eastern Europe, generating profit from the investments there. The richer, Western European nontargeted regions also enjoy a higher GDP after the investment in the East, but these effects are smaller. Thus, the policy reduces interregional disparities. There are rippled patterns in the predicted policy spillovers. In nontargeted countries, regions trading more intensely with regions where the investment is taking place on average benefit more compared to other regions within the same country, but also compared to neighboring regions across an international border. We uncover that regions importing goods from Central and Eastern Europe enjoy the largest spillovers. These regions become more competitive and expand exports, to the detriment of other regions in the same country.

Where does the EU cohesion policy produce its benefits? A model analysis of the international spillovers generated by the policy

In this paper, we investigate the macroeconomic effects of the 2007–2013 cohesion policy investments in the EU. First, we present a detailed overview of the EU budget and the contributions of the Member States for the specific policy under scrutiny. Then, we use a dynamic spatial general equilibrium model to assess the overall impact of the policy both in the short and the long run. Finally, we focus on the spatial spillovers generated by the policy programmes and highlight a number of policy-relevant findings with regard to the debate over the financing of the policy and the divide between its net contributors and net beneficiaries. Our main findings suggest that cohesion policy programmes have had a positive and significant impact on the economies of EU Member States and regions, particularly in the poorest regions of the EU. Spatial spillovers imply that the programmes implemented in the main beneficiaries of the policy also benefit its main contributors. For some of these Member States, spillovers constitute the main source of benefits from cohesion policy.

On the road (again): Commuting and local employment elasticities in Germany

This paper develops a quantitative spatial general equilibrium model for the German economy to address two issues. First, we explore the role of commuting for local labor markets and their capacity to absorb productivity shocks. Second, we address the role of housing markets for quantitative analyses. Germany is an exciting laboratory because commuting across local labor markets is pervasive, unique data are available, and because Germany's high degree of trade openness poses a thrilling counterpoint to the United States. Our key findings for German counties are that the employment and resident elasticities associated with local productivity shocks are much above unity, yet disparate (the former larger than the latter), very heterogeneous, and only poorly predicted by simple labor market statistics. Allowing the supply of land/housing to be price elastic increases the elasticities and reinforces our conclusions. The regional heterogeneity of the land/housing shares in Germany turns out to be inessential for our findings, the level of the land/housing share plays an important role, however. We perform a plethora of robustness checks which allow us to gain perspective on extant findings for the United States.

Modeling economic impacts of mobility restriction policy during the COVID‐19 pandemic

The economic impacts of pandemics can be enormous. However, lockdown and human mobility restrictions are effective policies for containing the spread of the disease. This study proposes a framework for assessing the economic impact of varying degrees of movement restrictions and examines the effectiveness of this framework in a case study examining COVID-19 control measures in Japan. First, mobile network operators data and total employment statistics on a 500-meter grid scale are used to determine the status of mobility restrictions and impacts on consumption in 30 industrial sectors. Next, the economic impacts are assessed using a spatial computable general equilibrium (CGE) model, proven to yield valuable insights into the total economic impacts of natural disasters. In sectors that implement telework and e-commerce-wholesale/retail, finance/insurance, and communication sectors-estimates of production and GDP are obtained that are close to the actual figures. The current case study is limited to Japan, but similar analysis can be conducted by using the CGE model for each country and open mobility data. Thus, the framework has potential to serve as an effective tool for assessing trade-offs between infection risks and economic impacts to inform policy-making by combining with findings from epidemiology.

Spatial inequality and housing in China

This paper investigates the evolution of inequality in China (1978–2015) through the lens of a dynamic spatial general equilibrium model with migration and capital formation. Due to an urban-rural income gap there is domestic migration from the rural to the urban areas which tends to reduce inequality. The resulting increase in urban house prices can, however, constitute an endogenous barrier to further urbanization. Increasing housing prices increase within-urban inequality between renters and landlords and also lock in urban-rural income differences. The calibrated model explains current, and projects future, development in China.

Transport Infrastructure and Regional Development: A Survey of Literature on Wider Economic and Spatial Impacts

The main purpose of the paper is to provide an overview of methods used to research the relationship between transport infrastructure investments and regional development, with a focus on wider impacts both in the traditional economic context (wider economic impacts or WEIs) and—which is a methodological novelty proposed by this paper—in the spatial context (wider spatial impacts or WSIs). In terms of methodology, research may be conducted using the following methods: cost benefit analysis (CBA) and multi-criteria analysis (MCA), accessibility and potential models, econometric production function estimates, regional modelling, trade and input-output (IO) modelling, Land Use-Transport Interaction (LUTI) or spatial computable general equilibrium (SCGE) models. In the European Union, approaches based on cost-benefit analysis (CBA), or possibly multi-criteria analysis (MCA), continue to prevail. Notwithstanding the availability of a wide range of methods for quantifying socio-economic impacts, the European Union recommends that wider economic impacts at the regional and national levels be assessed by means of qualitative approaches. This being the case, it is recommendable for the European Commission to take broad-ranging action towards ensuring that the effects of transport infrastructure investments are assessed by means of a broader range of approaches.