CGE model

ABSTRACT: The aim of this paper is to analyze the impact of offshoring on employment in France. In economic analysis, is often associated the phenomenon of relocation to the problem of unemployment. Using a Computable General Equilibrium Model (CGEM), we simulate the relationship between offshoring to the CEECs and the rising inequality between skilled (TQ) and unskilled (TNQ) workers. In order to study this impact, we will initially talk about theoretical and empirical contributions explaining the relation “relocation-employment”. In a second step, we will develop a CGE model (the model is implemented in GAMS) to test the impact of offshoring to the CEECs on wage and unemployment rate for skilled and unskilled workers. The simulation results show that there is a negative effect of offshoring on the situation of TNQ in terms of wages and employment and a rather positive effect on TQ. This confirms the “Stolper-Samuelson” theorem.

Computable General Equilibrium Model (CGE) To compare the impact of Globalization on rural and urban population we started with the simple model, which however integers all the standard characteristics of the CGE model of small under developed country. The demand system is derived from the Cobb Douglas

commissioned by NSW Department of Industry is in the labour market detail added to VU- TERM in response to the department’s requirements. The purpose of this document is to detail the theory of the skills module. While there are some references to the core model, we concentrate on several dozen equations in this document. This document falls short of being fully self-contained. More comprehensive references to the theory of a CGE model and coding of it can be found in the ORANIG document (Horridge 2014).

The product of many CGE model-building exercise is often seen as simply another economic model to add to a collection rather the birth of an important tool capable of answering economic questions. There are many reasons for the current level of skepticism surrounding CGE modeling effort. In implementing a CGE model, one is required to make many assumptions regarding data base, behavioral equations, and parameters. While CGE modelers may find that most of these assumptions are necessary and defensible, this provides little assurance to consumers of results. Of more interest to the modeler’s clients is whether a model is capable of producing a proven set of results deemed accurate and reliable. Thus, an exercise aimed at evaluating a model based on its predictive performance seems well placed. Of late, few attempts have been made in validating results of CGE models of developed countries. 1 In this spirit, this paper makes an attempt to test the forecast changes due to Indian trade liberalization in the nineties as modeled by Chadha, Pohit, Deardorff and Stern (1998a, 1998b) in their 34-sector India CGE model.

In this context, the purpose of this work is to develop a CGE model based on the trans- log function to investigate the issue of the energy mix in the power supply system. More- over, as an application of the suggested model, we investigate the effects of the carbon tax on the electricity industry. Barbe (2014), referring Wilcoxen (1988) and Jorgenson and Yun (2001), introduced the CGE model that model the production using multi- layered translog cost function. This study focuses on the power supply which is merely concerned by Barbe (2014) and analyzes the effect of carbon tax on Japanese power gen- eration in substitution–complement scenarios. Although the results are not the final answer to energy policy design concerning power supply or grid stabilization, this paper contributes to the literature as a useful framework of the further related researches.

A detailed CGE model such as NCAER-VU has hundreds of thousands of equations. In addition to equations such as (3) to (5), there must be equations to define: demands for intermediate inputs to current production and capital creation; demands by final users (households, exports, government, inventory accumulation); and margin demands. There must be equations to link purchasers prices [such as the p1’s appearing on the right-hand side of (4)] to sales taxes, the costs of margins and basic prices [such as p0dom on the left-hand side of (4)]. There must be market-clearing equations not only for commodities [illustrated by (5)] but also for primary factors. So that results can be reported conveniently, there must be defining equations for a wide range of macro variables such as the expenditure components of GDP (C, I, G, X and M), the income components of GDP (factor payments and indirect taxes), the price level, the average wage rate, the balance of trade and the public sector deficit. While CGE models have huge numbers of equations, when expressed in linear percentage-change form these are easily interpreted.

Australia’s superannuation sector has become both a major institution in guiding the allocation of the nation’s financial capital across asset classes, regions, and sectors, and a central intermediary in channelling the nation’s annual savings into domestic capital formation and foreign financial asset accumulation. To put the industry’s scale in context, in 2012 the sector had assets under management of approximately $1.4tn (Australia’s GDP in the same year was approximately $1.5tn). Annual inflows to the system represent approximately one third of gross national savings. The sector’s influence over the allocation of the nation’s physical and financial assets continues to grow. We model this important institution within an economy-wide setting by embedding explicit modelling of the sector within a model of the financial sector which is in turn linked to a dynamic multi-sectoral CGE model of the real side of the economy. We develop the financial CGE model by building on a multi-sectoral dynamic model of the real side of the Australian economy. In particular, we introduce explicit treatment of: (i) financial intermediaries and the agents with which they transact; (ii) financial instruments describing assets and liabilities; (iii) the financial flows related to these instruments; (iv) rates of return on individual assets and liabilities; and (v) links between the real and monetary sides of the economy. We explore the effects of the superannuation sector by simulating a one percentage point increase in the ratio of superannuation contributions to the economy-wide nominal wage bill.

In carrying out our investigation, we use a dynamic, computable general equilibrium (CGE) model of the U.S. This is not the first time that a CGE model has been applied in quantifying the potential effects of an epidemic. McKibbin and Sidorenko (2006) provide an extensive survey of the relevant modeling literature and report simulation results from a global CGE model of the effects of pandemics of various degrees of severity. Unlike McKibbin and Sidorenko, we focus entirely on the U.S. 4 This narrower focus allows for more detail in at least two dimensions: industries and periodicity. Whereas the McKibbin-Sidorenko model distinguishes six sectors, the model used in this paper identifies 39 sectors including sectors that are particularly relevant to the study of the economic effects of epidemics such as medical services and inbound and outbound tourism. With respect to periodicity, our model is quarterly whereas the models of all other CGE contributors to this literature, including McKibbin and Sidorenko, are annual 5 . Quarterly periodicity is an important advantage in modeling epidemics which tend to have sharp effects over periods much shorter than a year.

The real-side of the VU-Nat FCGE model is based upon MONASH, a dynamic CGE model of the Australian economy. For a detailed description of the economic mechanisms in MONASH, we refer the reader to Dixon and Rimmer (2002). Real-side CGE models have been used for many decades to answer diverse policy questions [Dixon and Rimmer (2016)]. They are however silent on, or treat implicitly, the question of how several important transactions are financed. For example, how is investment spending financed? How does the cost of financial capital affect the decision to invest in physical capital? Who is financing the public sector borrowing requirement (PSBR)? How is the current account deficit financed? Who decides how household savings are allocated? An important role of the financial part of the FCGE model is to answer these and related questions.

In reviewing the elasticities adopted in this study, I focus on two econometric studies. Van Heerden and Van der Merwe (1997) estimated elasticities that were adopted in IDCGEM, the Industrial Development Corporation’s (IDC) CGE model. Before their estimations, elasticities in IDCGEM were adopted from the MONASH model. In their study, the estimations are based on annual data for 25 manufacturing sectors for the period 1973–1993. For the majority of the manufacturing sectors, the results were statistically significant with the expected sign. Most of the elasticities were found to be similar in magnitude to other elasticities estimated by different econometric methods elsewhere (Van Heerden & Van der Merwe, 1997). The second set of estimations was conducted by De Wet (2003). His elasticities were adopted for a CGE model used to evaluate environmental policy (double dividend hypothesis). He used a combination of microeconometric and econometric methods to estimate several elasticities for 45 industries. The elasticities adopted in this study are summarised in Appendix 2.

Despite the implementation of the first phase of fuel subsidy targeting in December 2010, there are still debates over the economic impact of this project in Iran. A CGE model is used to analyze the impact of fuel subsidy targeting in Iran in four different scenarios. The data are used in the framework of SAM for the year 2001. In all scenarios, indirect subsidies are removed completely and replared with direct subsidies to households, manufacturing and service sectors and government institutions. The findings of this paper show that the effect of fuel subsidy targeting on economic variables depends on the way this policy is implemented. We find that an increase in the income of low-income household results in an increase in the production level of basic goods. Moreover, the result shows that the mining industry, glass and other non-metallic minerals and other service sectors have comparative advantages. In all senatrios, the elimination of in direct subsidies results in stagflation. The inflation rate resulted from this policy is predicted to be between 16.1 to 21.1 percent. Furthermore, in all senariors, higher direct payments of subsidies to households are associated with higher growth and inflation rates and lower balance of payments.

Abstract: This paper presents a dynamic Overlapping Generations Computable General Equilibrium (OLG-CGE) model of Scotland. The model is used to examine the impact of population ageing on the labour market. More specifically, it is used to evaluate the effects of labour force decline and labour force ageing on key macro- economic variables. The second effect is assumed to operate through age-specific productivity and labour force participation. In the analysis, particular attention is paid to how population ageing impinges on the government expenditure constraint. The basic structure of the model follows in the Auerbach and Kotlikoff tradition. However, the model takes into consideration directly age-specific mortality. This is analogous to “building in” a cohort-component population projection structure to the model, which allows more complex and more realistic demographic scenarios to be considered.

To construct a SAM to be used in the CGE model, we need to work with an I–O table reported at producers’ prices. However, BOK has switched to reporting the I–O table only at basic prices following the table for 2010. Hence, it is necessary to convert the I–O table valued at the basic prices to that valued at producers’ prices. The accounts that need to be addressed are: Taxes less subsidies on products, Scraps, and Tariffs. In the case of the table valued at producers’ price, the Taxes less subsidies on products are included in the Intermediate demand and the Final demand. However, in the case of the table valued at basic prices, Taxes less subsidies on products is reported as a separate account. Also, Scraps were included in the Intermediate demand and Final demand in the tables valued at producers’ prices. However, Scraps account is now reported sepa- rately as negative values in the input side and as positive values in the demand side. In the case of Tariffs, it used to be reported as Production tax on the demand side. How- ever, Tariffs now is reported as Taxes less subsidies on products on the Import table.

To implement a CGE model with an income distribution component, a consistent data base is required. MyGTAP in the study pursues the SAM (2007-08) desegregation of activ- ities, commodities, factors and institutions. The model follows the framework developed by Lofgren et al. (2001). This model is a standard static model rather than dynamic CGE model. Therefore the second period effects of changes in investment expenditures are not taken into account. Moreover, the model neither specific about the time horizon of the ad- justment nor how the adjustment is sequenced. Otherwise stated, the model cannot resolve whether adjustment from the base to a new equilibrium takes place over any particular length of time, or whether a large part of the adjustment occurs in a particular year.

structure which is fully compatible with the basic theories of economy. In addition, it put more emphasis on performance and distributive effects of different economic policies. We used an elimination production subsidies policy on economy of Iran. Subsidization has been pursued in Iran since early 1970s. One of the primary objectives of this study was to identify the effect of changing subsidy system policy, which protected food security of the poor in a cost-effective manner. According to many experts we can conclude that the Iranian government has intervened extensively in market price system (Behkish, 2002). From among common models of computable general Equilibrium include MSG, Johansson (1960) and SCGE, Shauwn and Walley (1984, 1998) and Loufghen (2000), ORANI, Dixson et al (1997), Horrige and Pierson (2003) the present study have used a computable general Equilibrium (ORANI_G). This study aims to investigate the effects of alternative subsidy rate reforms on production, export, import, employment sections of economic, and different macroeconomic items in Iran's economy. For this purpose, computable general equilibrium (CGE) model was applied. The scenarios consist of, gradual omission of production subsidy during 2 and one scenario complete omission of production subsidy.

Our task is to develop a financial module and run simulations to investigate the impact of tighter monetary policy in Papua New Guinea (PNG). The financial module is a set of equations that are added, as an extension, to an existing dynamic model for PNG, see Kauzi (2003). For current purposes the dynamic model was run in short-run comparative static mode. In this paper we do not explain the equations of the core economic module. For a detailed description of the core module, see Dixon et al. (1982). The financial module is linked to the core CGE model via three conditions. Firstly, the current account deficit is equal to the net inflow of capital. Secondly, the government deficit is equal to the new acquisition of domestic bonds. Thirdly, investment in industry i is set equal to the new acquisition of assets in industry i by agents z. Once these equations are activated, we endogenously determine the nominal exchange rate, domestic bond rate and the change in the cost of funds to industries. In this paper we describe the theory underlying the financial module.

According to the theory of general equilibrium , where the equilibrium disturbances causing imbalance ( disequilibrium) on the market , it will be followed by adjustments in the relevant market and the subsequent adjustment process occurs in other markets ( simultaneous adjustment) which brings the overall economy back in shape new balance . This applies to changes in the balance of producers and consumers. Common uses Walras equilibrium assumption, i.e. suppose there are n markets, and if n - 1 market is in equilibrium, and then all n the market will be in equilibrium. Walras proving the existence of general equilibrium is done by using formal mathematics. Walras concluded that a number n excess demand function does not depend on other functions. The total excess demand occurs in all types of goods or commodities produced (Nicholson, 1994) . If the value of all commodities offered in the same market with the value of the requested commodities in the market , while the prices ( in this case the relative price ) is known in the market as to n - 1 there is a balance , then the rest of the market that there will be a balance as well . CGE model describes the agents and the behavior of economic actors , so as to bring the different markets into a balance (Judge 2004) . In the CGE model formulation; there are linkages between economic actors, i.e. firms or industries, households, investors, governments, importers, exporters and between different commodity markets. The whole market is in a state of balance and have a specific structure to achieve a balance where there is shock in one market (Oktaviani, 2001).

Disaggregating industries and commodities in a CGE model increases the likelihood that the model can be applied directly in the analysis of a particular policy. This leaves the general messages intact while at the same time increasing the acceptability of the analysis and potentially producing new policy-specific messages. For example, with the disaggregated Motor vehicle sector included in GTAP-MVH, we found that tariffs on finished motor vehicle trade within NAFTA were not only negative at a macro level for the three NAFTA countries, but were also negative for output from their Motor vehicle sectors.

Another point that should be mentioned is that investment in road transport infrastructure as the only congested mode in the Iran has three effects on the model and these effects should be simultaneously considered in the simulation. Increase in the stock of infrastructure in this mode, first cause the increase in the productivity of capital transport of itself that is the same to the other transport modes in the model. Second, some saving in travel time is created that cause reduction in the generalized cost of transport for household and ultimately, saving time lead to increase labor supply in the labor market. Hence, to impose road-specific shock, we tried to consider these three effects simultaneously. In the remaining part of text, we have tried to present some of major results of imposed shocks of 1.5 billion dollars on the stock of infrastructure of different modes of transport in tables (1) to (4).

Turkmenistan, Uzbekistan, and Kazakhstan have adopted significant legislative changes since the fall of the former Soviet Union in an effort to attract foreign direct investment into their energy sectors. Of the three republics, Kazakhstan has been the most successful in attracting foreign interest, but all three republics face significant challenges in further development of oil and gas infrastructure. Even if these countries are completely successful in bringing in foreign investment, a question will remain: who wins and who loses in these countries. Using updated data, this paper will use a computable general equilibrium model to measure the effects of FDI into Central Asia. Results of the model suggest that the region would be better off overall from foreign investment in its natural gas sector, due mostly to improvements in overall production efficiency and its overall terms of trade. However, the gain in the natural gas sector would come at the expense of production and net exports of non-petroleum related industries.