Adjustments for the CGE model

The SAM, constructed using the procedure described above, can be readily used as a modelling and analytical tool (see for example Pyatt, 1988). However, before it can be regarded as a proper dataset for a standard CGE model, some further modifications need to be made. Unfortunately, often some degree of detail has to be sacrificed (depending on the structure of the model), in order to reconcile a SAM with the CGE framework at hand.

Accordingly, this section describes all steps that need to be followed to convert a SAM as above into a CGE model dataset.

It is possible there are negative entries in the capital row and investment column. To deal with it the following procedure was used: if there are negative entries in the capital row, this entry made the same but positive and the same value was added to the corresponding entry in investment column. Negative entries in the investment column were made equal to

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zero and the same value was added to the corresponding entry in the capital row. Both items were originally calculated as residuals in the compilation of the National Accounts, thus this adjustment does not change any “real” data. Since the savings of institutions are a residual of income and expenditure balance, negative savings in household account for the most part represent underreported income. Without any additional knowledge about the source of underreported income, negative household’s savings were substituted with zeroes and the corresponding difference was first subtracted from firm’s savings and added to firm’s transfers to household to keep the balance of rows and columns.

We assume that only households and firms receive capital income, and all labour income goes to households. Therefore, government’s receipts of capital income (entry – (Government; Capital)) was made equal to zero and allocated as transfers from household to government. Labour income from the rest of the world and labour income to the rest of the world (entries – (Labour; Rest of the World) and (Rest of the World; Labour)) were deleted and also allocated to the household’s labour income. The difference was added/subtracted to/from the household’s transfers with the rest of the world.

Inventories are usually not dealt with explicitly in the CGE models and therefore are aggregated with investments/savings account, as a result, represent gross fixed capital formation.

Cross-institutional transfers (household – household, government – government) would cancel each other out in the model, hence these entries were made equal to zero. This does not alter the SAM identities.

Within the basic SAM framework, exports are treated as part the commodity account. Most of the CGE models on the other hand, have exports in the production account (activities) since total domestic output usually expressed as a transformation function between exports and supply to the domestic market. Hence, exports shifted from the activity account to the commodity account and the gross domestic output (entry Activity; Commodity) was adjusted accordingly. Export duties similarly moved from commodities to activities.

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The structure of the resulting SAM for 2002, ready for CGE use, is shown in Table 4.10.

For presentation purposes, the disaggregation by households and by sectors has been suppressed.

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Table 4.10. Macro-SAM Modified According to the Requirements of the CGE Model

Com Act K L H G TC TE TK TI TM TY Invest R Total

Com 3925515 2205940 434999 1101610 7668064

Act 5841413 1781690 7623103

K 1964842 1964842

L 1429195 1429195

H 1964842 1429195 122189 3516225

G 276750 78690 81049 110459 112043 0 259668 0 918658

TC 78690 78690

TE 81049 81049

TK 110459 110459

TI 112043 112043

TM 0 0

TY 259668 259668

Savings 680830 313544 107236 1101610

R 1747961 93038 47927 1888926

Total 7668064 7623103 1964842 1429195 3516225 918658 78690 81049 110459 112043 0 259668 1101610 1888926

91 4.6. Conclusions

The purpose of this paper has been twofold. The first goal was to show all the steps, which are necessary to construct a detailed Social Accounting Matrix for the country like Kazakhstan. The resulting SAM is highly disaggregated with 57 sectors and 10 household types, which makes it a valuable policy tool that can be used by government, research centres and academics in the field. The second goal was to provide a detailed documentation for the data used within CGE model in the Chapter 5 of this thesis and give a detailed snapshot of Kazakhstan’s economic structure at the start of the oil boom.

A highly aggregated, macro-SAM was constructed first using mostly readily available National Accounts data. The description of each SAM’s entry demonstrates how the system of 1993 UN National Accounting framework can be utilised to build a consistent macro-SAM. At the second stage 2002 HBS data was matched to the household income and expenditure structure of the macro-SAM. Finally we put together a macro-SAM, several household types and Input-Output tables in a single disaggregated micro-SAM. To reconcile he data from the different sources we used cross entropy and least squares methods of adjustment. The final micro-SAM for 2002 is fully consistent with Kazakhstan’s National Accounts.

Last, we show how the micro-SAM needs to be adjusted for it to be used as a dataset in a relatively standard CGE model as in the one described in Chapter 3.

92 CHAPTER 5

Estimating the Economy-wide Impact of the Oil Industry and its Contribution to the Economic Growth

5.1. Introduction

The collapse of the Soviet Union has been accompanied by the major economic turmoil in the successor states. Former Soviet Union (FSU) countries generally followed similar paths through the transition from a state planned to a market regulated economy, although with varying degree of success. While some like Ukraine are yet to achieve pre-independence level of GDP, others, like Kazakhstan, enjoyed double digit economic growth and have exceeded their 1991 GDP level several years ago.

It is generally agreed that oil and gas industry played a leading role in Kazakhstan’s booming development following the collapse of the Soviet Union and initial economic downturn. High energy prices and recent discoveries of additional reserves induced massive investments in the industry, making Kazakhstan an important player on the international energy markets. For the domestic economy, it created demand driven growth fuelled by the export of natural resources.

But, what would the development path of Kazakhstan look like if there were no oil and gas industry? Its impact has never been assessed properly, the official statistics suggest a rather modest share of this sector in the country’s value added structure and hence its contribution to the economic growth. Official estimates of the economic impact of the oil industry do not go beyond simple GDP or Value Added shares calculations.

The living standards of the population have also been improving steadily after a dramatic decline in the early transition years. The income and consumption level might now be growing rapidly now, but it remains to be analysed of what that implies for the evolution of income distribution in Kazakhstan? With growth rather heavily focused around a few sectors, are its benefits similarly concentrated, or is the general population enjoying improving living standards?

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This paper proceeds as follows. First, it provides a theoretical background and literature review for the simulations. Second, this study presents calculations on simulated average annual impact of the oil industry growth on the economy as a whole, which provide an indication of to what extent the total economic growth can be attributed to the oil industry. This is done with the help of a Computable General Equilibrium model of Kazakhstan. It becomes possible to demonstrate how the expansion of minerals production has a spillover effect on the rest of the economy via inter-industry linkages, final consumption and other mechanisms.

Moreover, the results from two alternative current account closure rules are compared to assess potential Dutch Disease effects. Finally, using Kazakhstan’s household budget survey and results of the model simulation the estimates are done on how the recent booming development of the oil and gas industry affects income inequality and poverty in Kazakhstan.