A Multi-Regional Computable General Equilibrium Model for New Zealand

<p>Although New Zealand has had an active CGE modelling community since the 1980's, a multi-regional CGE model for the country has not been developed until now. This thesis presents a prototype multi-regional CGE model to demonstrate the feasibility of developing a comprehensive model that captures the benefits of modelling agent behaviour with a bottom-up approach. The prototype model is built upon bottom-up regional micro-foundations and New Zealand data is used to operationalise a particular implementation of the model. The thesis fills an important gap in the New Zealand CGE modelling literature as none of the models in current use have a structure involving bottom-up regional modelling. The method of implementation is also a key contribution, utilising a maximum-entropy approach to overcome data shortages. An illustrative simulation of a natural disaster that strikes the Wellington central business district demonstrates the strengths of the bottom-up multi-regional approach - that the model can capture differential effects across regions of shocks that occur at the regional level, and incorporate flow-on and feedback effects between regions. Sensitivity testing of the substitution elasticity between domestic sources of products reinforces the importance of empirically-estimated parameters in CGE models. The basic model is extended in two ways. The first is to introduce modelling of distribution services as has been done in the ORANI and subsequently FEDERAL models. The key structural difference here is that products identified as distribution services are required to facilitate movement of other products from seller to buyer. Thus there are no opportunities to substitute away from these services if they become relatively more expensive. To implement the additional structure, sets of coefficients are specified to control technical possibilities in the usage of the distribution services. These include switches that can dictate, for example, that wholesale trade is only involved in the delivery of tangible products, that retail trade is only used by in-region purchasers, and that transport is required for moving physical products across regional borders or to exporters. That these assumptions can be integrated seamlessly into the database highlights the strength of the maximum-entropy approach used to generate the multi-regional input-output database. Simulations of an oil price shock show that the regional assumptions surrounding the distribution networks are material to the results. The second extension to the model is the addition of a module to control the degree of inter-regional labour mobility. Essentially the user is given the ability to specify the extent to which households respond to regional real wage di erences by moving to regions with relatively higher rates. Therefore, in short-run simulations labour can be made more mobile than capital, while in the long-run it can be less mobile than capital. The module also introduces additional structure to link populations, households, and labour market components. One important element of this new structure is a link back to the endogenous labour supply theory of the basic model. Publicly available demographic and labour market data are used to implement the mobility module. The importance of a mobility response to relative real wage changes is explored in an illustrative application looking at the impact of regionally-concentrated immigration flows. The simulations suggest that population movements can work to dissipate the welfare effects of such migration inflows.</p>

A Multi-Regional Computable General Equilibrium Model for New Zealand

<p>Although New Zealand has had an active CGE modelling community since the 1980's, a multi-regional CGE model for the country has not been developed until now. This thesis presents a prototype multi-regional CGE model to demonstrate the feasibility of developing a comprehensive model that captures the benefits of modelling agent behaviour with a bottom-up approach. The prototype model is built upon bottom-up regional micro-foundations and New Zealand data is used to operationalise a particular implementation of the model. The thesis fills an important gap in the New Zealand CGE modelling literature as none of the models in current use have a structure involving bottom-up regional modelling. The method of implementation is also a key contribution, utilising a maximum-entropy approach to overcome data shortages. An illustrative simulation of a natural disaster that strikes the Wellington central business district demonstrates the strengths of the bottom-up multi-regional approach - that the model can capture differential effects across regions of shocks that occur at the regional level, and incorporate flow-on and feedback effects between regions. Sensitivity testing of the substitution elasticity between domestic sources of products reinforces the importance of empirically-estimated parameters in CGE models. The basic model is extended in two ways. The first is to introduce modelling of distribution services as has been done in the ORANI and subsequently FEDERAL models. The key structural difference here is that products identified as distribution services are required to facilitate movement of other products from seller to buyer. Thus there are no opportunities to substitute away from these services if they become relatively more expensive. To implement the additional structure, sets of coefficients are specified to control technical possibilities in the usage of the distribution services. These include switches that can dictate, for example, that wholesale trade is only involved in the delivery of tangible products, that retail trade is only used by in-region purchasers, and that transport is required for moving physical products across regional borders or to exporters. That these assumptions can be integrated seamlessly into the database highlights the strength of the maximum-entropy approach used to generate the multi-regional input-output database. Simulations of an oil price shock show that the regional assumptions surrounding the distribution networks are material to the results. The second extension to the model is the addition of a module to control the degree of inter-regional labour mobility. Essentially the user is given the ability to specify the extent to which households respond to regional real wage di erences by moving to regions with relatively higher rates. Therefore, in short-run simulations labour can be made more mobile than capital, while in the long-run it can be less mobile than capital. The module also introduces additional structure to link populations, households, and labour market components. One important element of this new structure is a link back to the endogenous labour supply theory of the basic model. Publicly available demographic and labour market data are used to implement the mobility module. The importance of a mobility response to relative real wage changes is explored in an illustrative application looking at the impact of regionally-concentrated immigration flows. The simulations suggest that population movements can work to dissipate the welfare effects of such migration inflows.</p>

Systematic literature review on computable general equilibrium applications in tourism

Assessment of the economy-wide impacts of tourism has increased importance due to the unprecedented impacts of COVID-19. Computable general equilibrium (CGE) approach is a versatile tool for estimating the economy-wide impacts of tourism, as opposed to alternative general equilibrium approaches and partial equilibrium approaches. However, there has not been any systematic review done on CGE applications in tourism literature. The article reviews CGE applications in tourism over the past 25 years using a systematic quantitative literature review approach. This review presents potentially important applications of CGE models in guiding post-COVID tourism. Further, the article highlights the new developments in CGE modelling, which are yet to be adopted in tourism economics. Existing studies show a strong geographical bias. Notable research gaps exist in the areas of poverty, inequality, gender, environmental and the climate change impacts of tourism. Future research in these areas will be vital to effectively guide post-COVID tourism recovery.

Economic and environmental effects of reduction in smoking prevalence in Tanzania

BackgroundIn Tanzania, strong tobacco control measures that would lead to a reduction in prevalence (consumption) have so far not been implemented due to concern about possible economic effects on gross domestic product and employment. The aim of this study is to analyse the economic effects of reducing tobacco consumption in Tanzania.MethodsThe study uses computable general equilibrium (CGE) modelling to arrive at the effects of decreasing tobacco prevalence. A full-fledged global CGE model was developed, including comprehensive details on tobacco and tobacco products/sectors using the Global Trade Analysis Program-Environment model and database.ResultsThe results indicate that a 30% reduction in prevalence could lead to employment losses of about 20.8% in tobacco and 7.8% in the tobacco products sector. However, when compensated by increases in other sectors the overall decline in employment is only 0.5%. The decline in the economy as a whole is negligible at −0.3%.ConclusionInitially, some assistance from the Tanzanian government may be needed for the displaced workers from the tobacco sector as a result of the decline in smoking prevalence. However, these results should be taken as a lower bound since the economic burden of diseases caused by tobacco may be far higher than the sectoral losses. The results do not include the health benefits of lower smoking prevalence. In addition, the revenues from higher taxes, as part of measures to decrease prevalence, would provide more fiscal space that can be used to finance assistance for displaced tobacco farmers and workers.

Economic Impact Assessment

Concepts for understanding economic impacts, and valid methods of assessment are well developed. In fact, there is so much information available that this is the largest chapter in the book – not the most important. A thorough and accessible reference on the subject is the book Tourism Economics and Policy by Dwyer, Forsyth and Dwyer (2010) as it contains a full chapter on events. Event Tourism (Getz, 2013) also covers economic impact assessment in detail. There have been well-documented problems with economic impact assessments for tourism and events (Matheson, 2002; Matheson and Baade, 2003; Crompton and McKay, 2004; Tyrell & Ismail, 2005; Crompton, 2006; Davies et al., 2013), pertaining to both how they are done and the purposes they serve. Dwyer and Jago (2014, p.130) identified three main types of criticisms associated with the assessment of the economic impacts of events, commencing with the exaggeration of benefits owing to either deliberate manipulation or faulty methods. Attention has often focused on the use of Input-Output tables to formulate ‘multipliers’, a practice which leads to exaggerated benefits, with a number of scholars preferring Computable General Equilibrium (CGE) modelling. Most fundamental is the frequent failure to consider all costs and benefits, leading to calls for more comprehensive cost-benefit analysis (CBA). Most economic IAs have utilized only a narrow range of metrics, but even more unfortunate is the continued reliance on multipliers and econometric models, as these ‘black-box’ approaches tend to exaggerate imputed benefits while ignoring costs and equity issues. This is certainly not in keeping with principles of social responsibility and sustainability.