Kein Folientitel

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Institut für Regionalforschung der Universität
Kiel
Modelling SCGE in TRANS-TOOLS
TRANS-TOOLS meeting November 17-18, 2005 TNO,
Delft
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Rationale behind employing a SCGE model

• Need to analyse the impact of a large set of
  policy measures from the point of view of primary
  objectives of the EU, like economic growth and
  achieving territorial cohesion
• Cannot neglect the interdependencies in economic
  processes
• Regional scale where costs and benefits accrue?
• Thus, set up a multiregional computable general
  equilibrium model
• CGEurope explicitly incorporates transport costs
  as a cost component for the firms and business
  travellers

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Features of the CGEurope model

• CGEurope is a Spatial Computable General
  Equilibrium model
• Final demand represented by utility maximizing
  households
• Production presented by profit maximizing firms
• Income-expenditure loop is closed
• Flexible prices clear all markets simultaneously

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Features of the CGEurope model (Continued)

• Production is diversified, with different
  varieties produced at different locations
• Firms and households choose supply sources
  according to relative prices, which include
  interregional transfer costs
• International trade imposes extra costs on trade
  due to international and cultural impediments
• Output Measures impact of transport policies on
  real regional GDP and the equivalent variation
  indicator

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How do scenarios enter the model Transport Costs
Transport costs change
Relative prices change
Response on the demand side via elasticities of
substitution
Response on the supply side via elasticities of
transformation
Goods and factors markets clear at new price
vectors
Factor income change
Price index change
Utility (Welfare) change
Costs for freight and business travel
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How do scenarios enter the model Road Pricing
Transport costs change
Road pricing change
Relative prices change
Response on the demand side via elasticities of
substitution
Response on the supply side via elasticities of
transformation
Goods and factors markets clear at new price
vectors
Factor income change
Price index change
Revenue accruing to households change
Utility (Welfare) change
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Technical details General

• 273 European NUTS2 regions and rest of the world
• 4 industries Agriculture, Mining, Manufacturing,
  Services
• 12 traded commodities (11 NSTR codes services)
• All sectors produce tradables, each has a
  different degree of economies of scale and of
  perfect versus monopolistic competition
• Private households public sector investment
  lumped together to one representative household
  per region
• Factor stocks are fixed. Factors are mobile
  between sectors but immobile between regions

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Technical details Households

• Households are price-taking utility maximizers
• Nested CES utility function
• 1st level choice between sectors
• 2nd level choice between regions of origin
  (Armington-type demand)
• 3rd level choice between varieties
• Income source regional factor income and revenue
  from road pricing
• Expenditure regional final demand
• Net interregional transfer (positive or negative,
  depending on the current account balance)

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Technical details Firms

• Firms are profit-maximizers
• Free entry price-taking behaviour with respect
  to factors
• Varying degree of price-setting power between
  sectors (next slide)
• Nested CES technology
• 1st level choice between intermediate and
  primary factors
• 2nd level choice between regions of origin
  (Armington-type demand)
• 3rd level choice between varieties
• Multiproduct output (details to be presented)

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Technical details Market form

• Modified Dixit-Stiglitz approach (Venables, 1999)
• Extra parameter ? for each sector allows for
  choosing the degree of monopolistic versus
  perfect competition
• ? 0 perfect competition, constant returns to
  scale
• ? 1 monopolistic competition, increasing
  returns to scale
• In IASON study we assumed
• ? 0.1 for agriculture
• ? 0.5 for manufacturing
• ? 0.7 for services

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Theoretical extension Industry-commodity
framework
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Matching of traded commodities with model sectors
NSTR commodity groups
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Matching of NSTR commodity groups with GTAP
sectors
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Technical details Transfer costs

• Trade between regions is costly, including
• Freight costs
• Road pricing
• Cost of business travel
• Costs for overcoming international trade
  impediments
• All these are combined in the single transfer
  cost function
• Sources for sectoral cost shares of freight and
  business transport costs for each commodity
  unclear (comments from partners are welcome here)

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Data Requirements for CGEurope

• National Accounts
• Sectoral input-output tables, final demand
  (Source GTAP)
• Regional data
• GDP, population (Source GTAP, Eurostat)
• Sectoral Data Employment or/and Value Added by
  sector
• (Sources GTAP, Eurostat, ILO, national sources)
• Trade
• Interregional trade by commodity class in tons
  (Source ETIS-BASE)
• Country-level totals for exports and imports of
  services (Source GTAP). These will be split
  according to pattern of trade in goods.
• Transport costs
• Freight costs (Source TNO)
• Costs for business passenger travel (Source IWW)

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Interfaces to the other models Input

• Transportation cost for freight to be delivered
  by TNO
• Transportation cost for business passenger travel
  to be delivered by IWW
• Cost shares of business travel and freight cost
  for each commodity (NEAC?)
• Macroeconomic predictions (from ASSESS project?)

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Interfaces to the other models Output

• Model output
• After-shock commodity flows in values
• Policy evaluation measures (real GDP and EV by
  region)
• Data collection phase output
• Regional GDP and output by sector

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Adjustment procedure for trade data

• No values of trade flows available from ETIS-BASE
• Need to run a multidimensional adjustment
  procedure for the quantity flows
• Constraints to be met in value terms
• Commodity flows into each destination sum up to
  the use figures from GTAP (for each commodity,
  for each destination)
• Flows of all commodities from a region sum up to
  estimated output figures (for each industry, for
  each origin)
• Values of international trade flows must be
  matched (for each commodity, each country-pair)