Static Computable General Equilibrium Research Articles

Comparing Carbon Regulation Scenarios for BRICS and EAEU Economies Using a GTAP-E Model

The paper compares the economic effects of a national carbon tax with those of an emission trading system (ETS) between EAEU and BRICS countries over the medium term. Also included are Uzbekistan, which has observer status in the EAEU, and Turkmenistan, which is an EAEU trade and economic partner. The static computable general equilibrium model GTAP-E is employed. Targets for reducing emissions are formulated on the basis of the countries’ intermediate goals as stated in their respective submissions under the Paris Agreement. The resulting simulations show that, in terms of real GDP, an emission trading scheme would be more favorable than national taxation for countries such as Brazil, India, Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan. However, for China, South Africa, Uzbekistan and Turkmenistan, resorting to an ETS would produce a comparatively greater reduction in GDP. Because the second group of countries has lower abatement costs than the equilibrium carbon price under an ETS, that scenario would permit those countries to reduce emissions by a greater amount and sell emission allowances. The analysis also shows which sectors would increase production after carbon regulation. A considerable increase in production and exports would occur for chemicals and for ferrous and nonferrous metals in several BRICS and EAEU countries. Although those industries are energy-intensive, the countries concerned could decrease emissions by reducing production in the energy or other sectors. These industries could benefit from potential joint comparative advantages in the context of declining demand for traditional energy sources. These findings should be valuable in devising integration policy.

Impacts of Global Warming on Regional Energy and Economy: Uneven consequences arising from global warming-induced heating and cooling demand of households

The impacts of global warming vary across regions. This paper studies the distributional implications of global warming impacts on household energy use for heating and cooling and the induced macroeconomic responses under different scenarios. Our research updates the direct impact of global warming on household energy demand in 140 regions worldwide by utilizing existing estimations of damage functions related to temperature changes. Subsequently, the updated direct impact is used in a global static computable general equilibrium (CGE) model to evaluate the macroeconomic responses. We find that at the global level, the market effects cause a reduction in the direct impact on the demand for oil and gas, while that for electricity displays a positive but moderate growth. Whereas the regional effects vary across countries and lead to changes in both directions, in which the autonomous adaptation embodied in the global market plays a vital role. Furthermore, we find strong inequality in the socioeconomic responses to global warming across regions. Notably, low-income countries are most strongly affected by increased primary energy use and decreased gross domestic product (GDP). Disparities in the impacts on carbon-based energy sources yield a near-perfect inequality as per the adjusted Gini index for CO2 emission changes, which potentially intensify the distributional consequences of global climate change.

Growth, fiscal and welfare implications of trade liberalization in Africa: A macro‐micro modeling assessment of the Senegalese economy

AbstractThe African Continental Free Trade Area (AfCFTA) has been hailed as a key pillar and catalyst for economic growth, industrialization, and sustainable development in Africa. One of the anticipated benefits is the promise to increase intra‐African trade through the elimination of import duties and other tariffs among countries. However, due to the heterogeneity between the African countries, questions remain as to whether each country will benefit from tariff elimination. This paper aims to evaluate the macroeconomic, fiscal, and welfare consequences of import tax removal in Senegal with the rest of Africa. We link an extended version of the partnership for economic policy (PEP) static computable general equilibrium (CGE) model with a non‐parametric microsimulation approach. We calibrate the model with Senegal's most recent Social Accounting Matrix. The microeconomic model is calibrated using the latest Senegalese household consumption survey. The findings indicate that tariff removal from the rest of Africa has favorable economic, fiscal, and welfare impacts for Senegal. The paper suggests that it will lead to an increase in economic growth and investment. The removal of tariffs is expected to favor urban households over rural ones and leads to a modest decrease in income inequality, accompanied by a 3.36% reduction in the number of poor.

Water Charge and Conservation of Natural Areas: An Ex‐Ante Assessment of a Policy Proposal for the Mantiqueira Region, Brazil

AbstractWater plays a central role in several socioeconomic and environmental nexuses. Faced with various anthropogenic pressures that act as water scarcity drivers and knowing that the unavailability of water can be a limiting factor for economic development, there is an urgent need for the design and evaluation of economic instruments that help in the management of water resources. This article presents a proposal and assessment for a Pigouvian water charge instrument. The instrument suggests imposing a charge based on the amount of water consumed, targeting the agriculture, livestock, forest extraction, and aquaculture sectors. The revenue generated from this charge could be utilized to fund reforestation initiatives and support government expenditures, thereby creating both environmental and economic advantages. Based on a calibrated static computable general equilibrium economic model for the Brazilian Mantiqueira region, it was possible to estimate that a water charge policy at a rate of R$ 0.10/m3 (US$ 0.026/m3) could lead to an increase in the Brazilian GDP in the benchmark year by US$ 10.7 million. Economic benefits could also be verified at the regional level, especially in those areas where there are water‐intensive economic activities. On the environmental side, the water charge could incentivize actions capable of recovering approximately 80 km2 of natural areas.

Simulating the environmental and economic effects of a carbon tax in Vietnam: a static computable general equilibrium analysis

PurposeA carbon tax has been widely discussed and implemented in developed countries to mitigate carbon emissions, but this measure is still quite new in developing countries. Recently, the ambition of Vietnam's government in mitigating emissions has been mentioned in international commitments. To achieve these targets, the government is making efforts to seek and implement mitigation measures in the country. While carbon pricing was introduced in Vietnam, there is no study simulating the effects of a carbon tax in the country. This study simulates the environmental and economic effects of a carbon tax and then proposes appropriate policies in Vietnam.Design/methodology/approachThis study investigates the impact on the Vietnamese economy within the static computable general equilibrium (CGE) framework. Compared with previous models, the proposed model in this paper is a fairly standard CGE approach that tries to picture the economic system of Vietnam. In addition, a carbon tax on output will be modeled in this framework. This carbon tax mechanism is more flexible and direct when a carbon tax is based on direct emissions by industry level and the industry's carbon intensity. The paper decomposes the Vietnamese economy into 18 different production sectors, based on the different emission levels of CO2. The CGE model makes possible to examine the impact of a carbon tax on the whole economy through all possible channels and to differentiate a separate carbon tax among different production sectors. The impact of a differentiated carbon tax is explored not only at the macroeconomic level but also at each different industrial level. Another feature of this paper is to investigate the impact of reallocation revenue from the carbon tax.FindingsThis paper has found that by designing carbon tax scenarios at different carbon prices ($1/tCO2, $5/tCO2, $10/tCO2) with different targeted industries, this study shows that higher carbon prices cause greater damage to GDP and welfare, but also better reductions in emissions. In addition, a carbon tax on the energy sectors results in milder economic and welfare damage but less emission reduction than when levying on all sectors. At the sectoral level, a carbon tax might cause sectoral restruction. Interestingly, the electricity sector is the most affected and also is the main contributor to reducing emissions in Vietnam. Finally, the study also shows that reallocation policies of new revenue from the carbon tax would reduce the economic damage caused by carbon taxes, and in many cases promote GDP and welfare. However, these policies reduce the environmentally positive impact of the carbon tax and even induce an increase in emissions in some cases.Originality/valueThis paper studies the pure impacts of a carbon tax, it also simulates the impact of several recycling policies where the increased tax revenue is incorporated. Thereby, this research supports to design and implement carbon tax policies in Vietnam. This paper also would contribute to the literature an example of the adoption of the carbon tax in a developing country, and it could be a lesson for others with similar conditions. Compared with previous models, the proposed model in this paper is a fairly standard CGE approach that tries to picture the economic system of Vietnam. In addition, a more flexible carbon tax mechanism is proposed to improve adequate coverage of emission resources.

Implications for the Iranian economy from climate change effects on agriculture—a static computable general equilibrium approach

Implications for the Iranian economy from climate change effects on agriculture—a static computable general equilibrium approach

Impact of carbon tax on energy sector segmentation under different closures: A case study of China via CGE model

Carbon tax is important to achieve carbon peaking and carbon neutrality goal. In this paper, we study the impact of carbon tax on energy sector segmentation in China under different closures. First, the social accounting matrix (SAM) of year 2017 is constructed. Second, the electric sector is subdivided into five power generation sectors. Third, by building a static computable general equilibrium (CGE) model, carbon tax is simulated under Neoclassical closure (NC) and Keynesian closure (KC) respectively. The results validate that carbon tax is efficacious in reducing CO2 emission. Specific findings include the following. (1) Carbon tax on three fossil fuels (i.e., coal, oil and natural gas) will increase with the improved emission reduction goal. (2) Reducing the usage of coal and thermal power plant in the electric power sector will significantly contribute to CO2 emission reduction. (3) Carbon tax can produce double dividend effect under KC scenario to increase the income of households and government. (4) The 30% emission reduction goal can be achieved under KC with the carbon tax at 84.19 yuan/ton, which is 3.3 yuan/ton less than that under NC. In the meantime, the carbon emission density will reduce to 116.93 t/million yuan.

Carbon Tax and Environmental Quality in South Africa

Carbon taxes are considered an important environmental policy instrument for the improvement of environment quality in developing countries. Despite these premises, the implementation of the carbon tax policy in developing countries has lagged behind. The aim of this study is to analyse how carbon tax influence environmental quality and economic performance in South Africa. Such a country-oriented inquiry is envisaged to have some positive policy implications for the South African economy and other developing nations. The analysis was conducted using a static computable general equilibrium (CGE) model of South Africa, which was expected to capture the observed structure of South Africa’s economy. Furthermore, the parameters of the CGE equations were calibrated to observed data from a social accounting matrix (SAM) for 2015. The results show that environmental tax has negative effects on gross domestic product with the energy sectors which are generally the most polluting sectors suffering higher output losses due to the environmental tax. Household consumption is significant reduced by 2.34% due to the reduction in emissions as a result of carbon tax policy. According to the study findings, policy-makers should consider an initial 5% carbon tax policy which may results in achieving reasonably good environmental quality without losing on investment, fixed capital investment and government revenue.

IMPACT OF GROSS DOMESTIC PRODUCT GROWTH ON BRAZILIAN NATIVE FORESTS: A COMPUTABLE GENERAL BALANCE ANALYSIS

Brazil is one of the world's leading producers and exporters of agricultural products. And it should continue to expand its production in the coming decades, thus remaining one of the main providers of food, fiber and bioenergy for domestic and foreign consumption. This study aimed to analyze, through the Static Computable General Equilibrium model, BREA, the impacts on intermediate demand and on the growth of agricultural production necessary for GDP to reach the expected projection for 2030, both for Brazilian macro-regions and for the MATOPIBA as well as the loss of native forest necessary for this to occur. As a result, to compose the GDP growth in the North region, fruit growing would emerge with a growth of 9.2%. In MATOPIBA, soybean growth in suppressed forest areas showed a growth of approximately 9.7%. It is observed that soy would continue to migrate to regions that hold cheap land and without the embargo of the soy moratorium. The total number of forests suppressed in Brazil for this to occur would be 490 thousand hectares. It is concluded that economic growth related to agricultural sectors is also linked to the conversion of areas of native vegetation for the growth of future production of commodities.

Structural Model for the Analysis of ‘The Impacts of Import Tariff Changes on Domestic Industrial Production’ in Nigeria

This study has investigated the ability of import tariff changes to match the relationship between import tariff changes and domestic industrial production in Nigeria. The study used a Static Computable General Equilibrium model of an archetype country to run simulations that indicate the nature of the static effects of import tariff changes on Nigeria. This study identifies four different scenarios to investigate the impacts of the changes in the import tariff rates on domestic industrial production in Nigeria. Scenarios try to get macroeconomic and welfare variables changes after the tariff rate changes compared to the base case scenario 2019 in which the benchmark equilibrium parameters are calibrated. The results shows that the growth of domestic industrial production have direct relationships with import tariff changes. That is, import tariff increase will provide increases in domestic industrial production. On the basis of our findings, this study recommends that, economic policies aiming to establish a level of import substitution seems to be more favourable in Nigeria, therefore, they should be encouraged. Also, a coordinated interplay of monetary and fiscal policies will be required to minimise contemporaneous distortions that arise from trade restrictions.

Modeling Potential Economy-Wide Impacts of Increased Demand for Forest Products in Kentucky

Abstract This study applies a static single-region computable general equilibrium model to provide a snapshot of the economy-wide impacts of anticipated increase in wood products demand in Kentucky. Two counterfactual scenarios of supply increase in the forest sector are simulated. Results show an increase in welfare of high-income households, whereas welfare of low-income households declines marginally due to increase in producer supply prices. Thus, complementary policies to improve welfare of low-income households are imperative as the forest sector expands. Overall, Kentucky’s economy is positively affected through increase in gross regional product. Findings provide valuable policy-relevant information for a sustainable Kentucky forest sector. Study Implications: This study provides insights into economic contributions and impacts associated with increase in demand for Kentucky sector products. Results suggest that expansion in the forest sector has an overall positive impact on the state’s economy. Findings reveal that increase in demand for forest products stimulates overall economic growth. Households experience income gains, but household income is affected disproportionately, with low-income households receiving the least income gains. Further, household income gains may not be enough to offset resultant producer price increases, especially those for low-income households. Findings from this study are useful from a policy perspective for evaluating the economic role of the forest sector in Kentucky’s economy, and they provide valuable information on why forestlands in Kentucky need to be sustainably managed to ensure a continuous supply of timber resources for the state’s forest sector.

Economic consequences of climate change impacts on the agricultural sector of South Asia: A case study of Sri Lanka

Scientific evidence suggests that agriculture will be adversely affected by climate change globally in the near future, with the countries and small islands of South Asia projected to be amongst the most vulnerable. This study uses the ORANI-G-SL, a single-country, static computable general equilibrium model to investigate the economic impacts of climate change-induced agricultural productivity changes on Sri Lanka, as a South Asian case study. In comparison with a baseline scenario, the results show reductions in the output of most agricultural crops will cause increased consumer prices for these agricultural commodities, with a consequential decline in overall household consumption within next few decades. The projected decline in crop production and increases in food prices will enhance the potential for food insecurity. Thus, climate change will negatively impact the overall GDP and most of the macro and microeconomic variables of the Sri Lankan economy. These results highlight the need for future scientific research on climate change adaptation strategies and the importance of developing policy responses to counter adverse effects on agriculture and food security.

Less Water, Less Oil: Policy Response for the Kenyan Future, a CGE Analysis

The continuous depletion of nonrenewable natural resources and climate change may lead to a future characterized by a higher frequency of extreme natural events (i.e., flooding, hurricanes, and droughts) and resource supply shocks (i.e., oil price shock). Sub-Saharan African countries will be particularly exposed to these types of shock due to their socioeconomic conditions and geographical conformation. This study investigates the impact of two contemporaneous covariant sudden shocks (i.e., drought and price oil shock) and the possible coping strategies through a static computable general equilibrium (CGE) model for Kenya. The results suggest that a mitigation policy as public transfers is an effective mitigation tool for drought effects, improving welfare and GDP in the short run. However, adopting public transfers during an oil crisis may have regressive effects on population income and welfare. Because the mitigation effectiveness is strongly affected by the complex interaction of combined shocks, the public authorities should pay attention to policy implementation. These findings call for a new scheme of transfer allocation where rural and low-income household quantiles should receive more attention by postdrought mitigation policy, being that they are more vulnerable to external shocks.

Non-Tariff Measures in the Food Processing Sector in Malaysia: An Assessment of Welfare Impacts

Given the ambiguity of the overall welfare effects of non-tariff measures (NTMs), this paper furthers our understanding of the well-being of consumers by focusing on a single sector analysis. It examines the welfare effects associated with the highly regulated food processing sector in Malaysia. A comparative static computable general equilibrium model is employed to quantify the welfare impacts of a partial removal of NTMs, or a reduction in trade restrictiveness of NTMs. The simulation results indicate welfare gains, albeit minimal (not more than 2%), from a partial reduction in NTMs, both in the short run and long run. A plausible reason for the somewhat small gains in welfare in the food sector is the dominance of standard-like measures relative to price or quantity-based regulations. The positive and small welfare effects from a partial removal of NTMs suggest that some regulations in the food processing sector may be pervasive in that they may embed some protectionist elements and/or they do not address genuine market failures. Therefore, this paper concludes that there is still scope for regulatory reform in the food processing sector in Malaysia.

Endogenous Capital Utilization in CGE Models: A Mongolian Application with the PEP-1-1 Model

This paper extends the PEP-1-1 model (a static computable general equilibrium, or CGE, model for small open economies) to incorporate variable capital utilization. It argues that CGE models with fixed sectoral capital may underestimate the impact of shocks in the short run by ignoring industries’ adjustment of their capital utilization rate (or intensity of use) in response to changes in their economic environment. The model is calibrated to a 2014 Mongolian social accounting matrix. An increase in the export price of coal is considered as a shock for demonstration purposes. Compared to the standard PEP-1-1 model the impact of the shock is larger in the expanded model. In addition, the results of the PEP-1-1 model are derived as a special case of the model involving capital utilization.

The economic and trade effects of the UK–Korea free trade agreement on the United Kingdom, Korea, Japan, China, and the European Union

AbstractWe explored a comparative static computable general equilibrium model with six regions and 12 sectors to estimate the impacts of the recent UK–Korea free trade agreement (FTA) along with the European Union (EU)–Korea FTA. The empirical results provide quantitative evidence of the impact on national GDP, national exports and imports by sector, and the changes in exports or imports among the United Kingdom, Korea, Japan, China, and the EU. The UK–Korea FTA, along with the EU–Korea FTA, increases GDP and welfare for the United Kingdom and Korea; moreover, there is a large increase in automobiles, transport equipment, and machinery exports between Korea and the United Kingdom. The GDP and welfare level of non‐member countries such as Japan and China will slightly decline. Exports from the United Kingdom and Korea to non‐member countries are also expected to decrease in most manufacturing sectors. The UK–Korea FTA will lead to increases in imports between the United Kingdom and Korea due to mutual trade creation effects and trade diversion effects. However, non‐member countries such as Japan's exports are expected to experience a large decline in automobiles to the United Kingdom and in most manufacturing products to Korea due to the negative impact of the UK–Korea FTA.

Population aging and labor mobility in Japan

By combining the static and dynamic computable general equilibrium models, this paper explores the dynamic impact of future demographic changes on the Japanese economy with a particular focus on multisector production and overlapping generations. Several numerical results were obtained. First of all, the sectoral real GDPs of the aging-related sectors are expected to continue to increase due to the higher demand generated by the elderly, while the total real GDP is forecasted to start to decrease from year 2036 due to the shrinking population. Secondly, calculations show that nearly 60 million more workers will be needed in the private long-term care sector in year 2049 than in year 2018. Thirdly, if a 90 percent inflow of additionally needed labor force to the medical services sector were to be obstructed, the total real GDP would shrink by 0.064 percent. If the same inflow obstruction were to occur to the private long-term care sector, the total real GDP would shrink by 0.030 percent. Fourthly, while a negative impact of the inelastic labor mobility was seen in almost all simulations, the impact of an obstruction in the medical service sector was found to be positive for the pharmaceutical sector due to substitution effect. Finally, the inelastic labor mobility will not only reduce the Japanese economic performance but also welfare, the extent of which depends on the duration of labor immobility. Thus, it is crucial for future economic growth as well as welfare of aging Japan that the additionally needed labor inflow to all aging-related sectors occurs smoothly.

Effects of Biofuel Crop Expansion on Green Gross Domestic Product

Following Thailand’s Alternative Energy Development Plan, lands for sugarcane and oil palm are being expanded to support biofuel production, thus decreasing the availability of land for other crops. Not only does this lead to the change in Gross Domestic Product (GDP) but also environmental consequences. This study assessed the effects of land expansion caused by biofuel promotion on Green GDP, which is the conventional GDP after adjusting for environmental damage. A static computable general equilibrium (CGE) model combined with life cycle impact assessment was used to estimate the effects of land expansion on economic transactions and conventional GDP. Results showed that compared with the business-as-usual scenario, expanding land for biofuel crops increased the Green GDP. However, rice cultivation and milling were adversely affected by the substitution of biofuel crops. Furthermore, expanding biofuel crops slightly reduced the production capacity of some industrial sectors. The Green GDP for biofuel crop expansion policies was greatest when abandoned rice fields were utilized for agriculture and lowest when forests were transformed. Using CGE to investigate the effects of policy on Green GDP yielded results that were comprehensive for decision making. The method presented in this study can be utilized for future Green GDP research focusing on other biofuel productions.

Estimating the Impact of Cumulative Rules of Origin on Trade Costs: An Application to Mega-regional Free Trade Agreements in the Asia-Pacific Region

AbstractWe investigate the effects of free trade agreements (FTAs), focusing on the impact of cumulative rules of origin (ROO) on trade costs. Using a gravity regression model, we estimate the effect of various cumulative ROO systems on the measured trade costs. We apply these estimates to static and capital accumulation computable general equilibrium models to compare the effects of mega-regional FTAs in the Asia-Pacific region—namely, the Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and Free Trade Areas in the Asia-Pacific (FTAAP). We find that mega-regional FTAs may not be a viable alternative to a multilateral trading system or bilateral FTAs unless less restrictive cumulative ROO are adopted. Successful FTAs depend on an appropriate cumulative ROO provision system rather than their membership expansion.

How to Promote Low-Carbon Economic Development? A Comprehensive Assessment of Carbon Tax Policy in China.

Facing the increasingly severe environmental problems, the development of a green and sustainable low-carbon economy has become an international trend. In China, the core issue of low-carbon economic development is effectively resolving the contradiction between the exploitation and utilization of fossil energy and greenhouse gas emissions (mainly carbon emissions). Based on the SAM matrix, we established a static Computable General Equilibrium (CGE) model to simulate the impact of carbon tax policies on energy consumption, carbon emissions, and macroeconomics variables under 10, 20, and 30% emission reductions. Meanwhile, we analyze the impact of different carbon tax recycling mechanisms under the principle of tax neutrality. We find that the carbon tax effectively reduces carbon emissions, but it will negatively impact economic development and social welfare. A reasonable carbon tax recycling system based on the principle of tax neutrality can reduce the negative impact of carbon tax implementation. Among the four simulated scenarios of carbon tax cycle, the scenario of reducing residents’ personal income tax is most conducive to realizing the “double dividend” of carbon tax.