4. MMRF REPRESENTED IN THE TABLO LANGUAGE
4.2.6 Foreign export demands ( TABLO excerpt 2.5.4)
To model export demands, commodities in MMRF are divided into four groups: traditional exports, which comprise the bulk of exports; non-traditional exports, which are mainly utilities and local services; tourism (travel and hospitality services); and special, which consists of
Communications and Water Transport. For each category, the model allows a different treatment of export demand. The relevant export demand set for each commodity in the model is given in Table 4.2.
4.2.6.1 Traditional exports (E_x4rA)
Exports account for relatively large shares in total sales of traditional export commodities. They (i.e., commodities in the set TEXP) are modelled as facing downward-sloping foreign-export demand functions
SIGMAEXP(c) X4R(c,s) F4Q(c,s) NATF4Q _ C F4Q _ C s NATF4Q c P4R(i,s) F4P(c,s) NATF4P _ C F4P _ C s NATF4P c cTEXP sREGSRC (4.18) X4R(c,s) is the export volume of commodity c from region s. The coefficient SIGMAEXP(c) is the (constant) own-price elasticity of foreign-export demand. As SIGMAEXP(c) is negative, (4.18) says that traditional exports are a negative function of their foreign-currency prices on world markets (P4R(c,s)). The variables F4Q(c,s) and F4P(c,s) allow for horizontal (quantity) and vertical (price) shifts in the demand schedules. The variables NATF4Q_C and NATF4P_C allow for economy-widehorizontal and vertical shifts in the demand schedules. The variables F4Q_C(s) and F4P_C(s), and NATF4Q(c) and NATF4P(c) allow for source-specific and commodity-specific economy wide shifts in the demand schedules. E_x4rA is the percentage-change form of (4.18).
4.2.6.2 Non- traditional exports (E_x4r_ntrad, E_x4rB and E_p4r_ntrad)
E_x4r_ntrad specifies the export demand for the non-traditional export commodities (i.e., commodities in the set NTEXP). The set NTEXP consists of all commodities except those for which special modelling of export demands is provided and the commodities classified as traditional exports. In MMRF, the commodity composition of aggregate non-traditional exports is exogenised by treating non-traditional exports as a Leontief aggregate. Thus, as shown in E_x4rB, with the shift variable fntrad(c,s) set to zero, the export demand for non-traditional export commodity c from source-region s moves by the common non-traditional export percentage, x4r_ntrad(s). The
common percentage change is explained by equation E_x4r_ntrad. This equation relates movements in demand for non-traditional exports from region s to movements in the average foreign currency
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price of those exports via a constant-elasticity demand curve, similar to those for traditional exports. The elasticity of substitution is given by the coefficient SIGMAEXPNTR, which is set to -4. Under this treatment, non-traditional exports respond as a group to changes in the group’s international competitiveness.
We use the shift variables in equations E_x4r_ntrad to simulate various types of vertical and horizontal shifts in the export demand schedule for non-traditional exports from region s. For example, if f4q_ntrad(s) has a non-zero value, then we impose a horizontal shift on the group’s export demand curve.
To simulate changes in the commodity composition of non-traditional exports, we can use non-zero settings for the shift variables in E_x4rB. For example, to cause the export volume of non- traditional component “Construction” in region s to change by a given percentage amount, we can make x4r(“Construction”,s) exogenous by freeing up fntrad(“Construction”,s). In this case, the model would endogenously determine the value for fntrad(“Construction”,s) which would reconcile the exogenously imposed setting of x4r(“Construction”,s) with the simulated value for x4r_ntrad(s).
Movements in the average foreign-currency price of non-traditional exports from region s (p4r_ntrad(s)) are determined via equation E_p4r_ntrad. The coefficient V4NTRAD(s) is the aggregate purchasers’ value of non-traditional exports from region s.
4.2.6.3 Tourism exports (E_x4r_tour, E_x4rC, E_p4r_tour and E_natx4r_tour)
These equations specify demands by foreign visitors in region s for tourism services, i.e., for commodities in the set TOUR. The foreign elasticity of demand for tourism services is set at –5.
The equations for tourism exports are similar to the equations for non-traditional exports. We adopt a similar “bundle” approach to explaining exports of tourism services. Foreigners are viewed as buying a bundle of tourism services. The price of the tourism bundle is a Divisia index of the prices of all tourism exports.
The bundle-specification for tourism exports, which is also adopted in MONASH, is theoretically attractive. It is reasonable to think of foreign tourists as buying service bundles consisting of a fixed combination of commodities (say, an air ticket, a certain number of nights’ accommodation, and food), with the number of bundles purchased being sensitive to the cost of a “bundle”, but with little scope for substitution within the bundle. In other words, it is reasonable to think of the export demands for tourism commodities being tightly linked, not to movements in their individual price, but to movements in their overall average price.
4.2.6.4 Exports of communications services (E_x4rD)
This equation explains exports of communication services, the only element in the set COMMUNIC. Following the treatment in MONASH,exports of communications services from source s are driven by the volume of foreign imports of communications services into s (X0IMP(c,s), for c COMMUNIC). This is based on the observation that communication exports consist mainly of charges by Australian telephone companies for distributing incoming phone calls, and of charges by Australian post for delivering foreign mail within Australia. Accordingly, on the assumption that outgoing communications generate incoming communications, the volume of communications imports drives the volume of communications exports.
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The variable fcommunic(c,s) for c COMMUNIC allows for shifts in the ratio of communication exports to imports in region s.4.2.6.5 Exports of water transport services (E_x4r_trad and E_x4rE)
When activated, E_x4rE deals with exports of commodities in the set WATTRANS. This equation is not activated unless the database is appropriately disaggregated. This set contains a single element, water transport freight services. Following the treatment in MONASH, exports of water transport freight in region s are assumed to move in line with the aggregate volume of traditional exports as found in equation
E_x4r_trad. The rationale is that the main use of water transport services outside Australia is for the shipment of bulk traditional exports, especially, iron ore, coal, wool and grain. The variable fwattrans(c,s) for c WATTRANS allows for shifts in the ratio of water transport exports to the volume of traditional exports.
! Subsection 2.5.4: Demands for exports ---!
! There are four category of exports: traditional, non-traditional, tourism and special (Communications, Water transport, Other transport). For each category, the model allows a different treatment of export demands. !
Equation E_x4rA # Export demand functions - traditional exports #
(all,c,TEXP)(all,s,REGSRC)
x4r(c,s) - f4q(c,s) - natf4q_c - f4q_c(s) - natf4q(c) =
[0 + IF[V4BAS(c,s) NE 0, SIGMAEXP(c)]]*
[p4r(c,s) - f4p(c,s) - natf4p_c - f4p_c(s) - natf4p(c)];
Equation E_x4r_ntrad # Export demand functions, non-traditional aggregate #
(all,s,REGSRC)
x4r_ntrad(s) - f4q_ntrad(s) - natf4q_c - f4q_c(s) - natf4q_ntrad = SIGMAEXPNTR*[p4r_ntrad(s) - f4p_ntrad(s) - natf4p_c - f4p_c(s)];
Equation E_x4rB # Individual exports linked to non-traditional aggregate #
(all,c,NTEXP)(all,s,REGSRC)
x4r(c,s) =
[0 + IF[V4BAS(c,s) NE 0, 1]]*x4r_ntrad(s) + fntrad(c,s);
Equation E_p4r_ntrad # Foreign-currency price of non-traditional aggregate #
(all,s,REGSRC)
ID01(V4NTRAD(s))*p4r_ntrad(s) = sum{c,NTEXP, V4PURR(c,s)*p4r(c,s)};
Equation E_natx4r_ntrad # Quantity of non-traditional exports, national #
sum{s,REGSRC, V4NTRAD(s)}*natx4r_ntrad =
sum{s,REGSRC, sum{c,NTEXP, V4PURR(c,s)*x4r(c,s)}};
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(all,s,REGSRC)
x4r_tour(s) - f4q_tour(s) - natf4q_c - f4q_c(s) - natf4q_tour = SIGMAEXPNTR*[p4r_tour(s) - f4p_tour(s) - natf4p_c - f4p_c(s)];
Equation E_x4rC # Individual exports linked to tourism aggregate #
(all,c,TOUR)(all,s,REGSRC)
x4r(c,s) =
[0 + IF[V4BAS(c,s) NE 0, 1]]*x4r_tour(s) + ftour(c,s);
Equation E_p4r_tour # Foreign-currency price of tourism exports #
(all,s,REGSRC)
ID01(sum{cc,TOUR, V4PURR(cc,s)})*p4r_tour(s) = sum{c,TOUR,V4PURR(c,s)*p4r(c,s)};
Equation E_natx4r_tour # Quantity of tourism exports, national #
sum{c,TOUR, sum{s,REGSRC, V4PURR(c,s)}}*natx4r_tour = sum{c,TOUR, sum{s,REGSRC, V4PURR(c,s)*x4r(c,s)}};
Equation E_x4rD # Communication exports move with communication imports #
(all,c,COMMUNIC)(all,s,REGSRC)
x4r(c,s) = x0imp(c,s) + fcommunic(c,s);
Equation E_x4r_trad # Volume of traditional exports from region s #
(all,s,REGSRC)
x4r_trad(s) = sum{c,TEXP, V4PURR(c,s)/sum{cc,TEXP, V4PURR(cc,s)}*x4r(c,s)};
Equation E_x4rE # Exports of water transport move with traditional exports #
(all,c,WATTRANS)(all,s,REGSRC)
x4r(c,s) = x4r_trad(s) + fwattrans(c,s) ;