Functional Forms and Parametrization of CGE Models

This study focused on the choice of functional forms and their parametrization (estimation of free parameters and calibration of other parameters) in the context of CGE models. Various types of elasticities are defined, followed by a presentation of the functional forms most commonly used in these models and various econometric methods for estimating their free parameters. Following this presentation of the theoretical framework, we review parameter estimates used in the literature. This brief literature review was carried out to be used as a guideline for the choice of parameters for CGE models of developing countries.Trade liberalization, Poverty, Elasticities, Functional forms, Calibration, Computable General Equilibrium (CGE)Model

Inter-temporal and Inter-Industry Effects of Population Ageing: A General Equilibrium Assessment for Canada

The objective of this paper is to examine the inter-industry and labour market occupational effects of population ageing in Canada, using a computable general equilibrium overlapping-generations model. The model is calibrated along a balanced-growth path, taking into account labour-augmenting (Harrod-neutral) technical progress. It also accounts for heterogeneity at the household level, using 25 occupation-specific earnings profiles. In addition to the impact of slower labour force growth, the model captures the shift in sectoral composition of final demand. The latter is due to different consumption preferences of older individuals. Moreover, a wage curve is introduced to explore the impact of population ageing on the unemployment rate. The simulation results indicate that the growth in real GDP per capita could decline by nearly one percentage point between 2006 and 2050. Besides, the production of services, in percent of total GDP, is projected to increase in the long-run, although the analysis shows more modest changes in production shares than in previous studies. The results also suggest that the equilibrium unemployment rate is likely to decline by more than 2 percentage points in the long run. The impact also varies quite significantly at the occupational level.Population ageing, growth, general equilibrium model, overlapping generations, Canada

Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis

Much current debate focuses on the role of growth in alleviating poverty. However, the majority of computable general equilibrium (CGE) models used in poverty and inequality analysis are static in nature. The inability of this kind of model to account for growth (accumulation) effects makes them inadequate for long run analysis of the poverty and inequality impacts of economic policies. They exclude accumulation effects and do not allow the study of the transition path of the economy where short run policy impacts are likely to be different from those of the long run. To overcome this limitation we use a sequential dynamic CGE microsimulation model that takes into account accumulation effects and makes it possible to study poverty and inequality through time. Changes in poverty are then decomposed into growth and distribution components in order to examine whether de-protection and factor accumulation are pro-poor or not. The model is applied to Senegalese data using a 1996 social accounting matrix and a 1995 survey of 3278 households. The main findings of this study are that trade liberalisation induces small increases in poverty and inequality in the short run as well as contractions in the initially protected agriculture and industrial sectors. In the long run, it enhances capital accumulation, particularly in the service and industrial sectors, and brings substantial decreases in poverty. However, a decomposition of poverty changes shows that income distribution worsens, with greater gains among urban dwellers and the non-poor.Dynamic CGE model, trade liberalisation, poverty, inequality, Senegal

Labour supply and income distribution effects of the working income tax benefit: A general equilibrium microsimulation analysis

In this study we assess the impact of the Working Income Tax Benefit (WITB) on labour supply, GDP and income distribution in Canada, using a general equilibrium microsimulation model. We also estimate labour supply and demand elasticities using survey data to ensure that households' behaviour is properly captured in the model. Simulation results show that the WITB affects particularly labour market participation of low- and medium-skilled lone-parents families. These positive effects on labour supply translate into higher after-tax incomes leading to a decline in low-income rates and low-income gaps. Our findings suggest that enhancing the WITB could provide additional income support to working Canadian families while reducing work disincentives for those trapped behind the welfare wall

Implications of WTO agreements and unilateral trade policy reforms for poverty in Bangladesh : short versus long-run impacts

The authors examine the effects of WTO agreements and domestic trade policy reforms on production, welfare, and poverty in Bangladesh. They use a sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, allowing for long-run analysis. The study is based on the 2000 Social Accounting Matrix (SAM) of Bangladesh including 15 production sectors, four factors of production (skilled and unskilled labor, agricultural and nonagricultural capital), and nine household groups (five in rural areas and four in urban areas). To examine the link between the macroeconomic effects and microeconomic effects in terms of poverty, the authors use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) The Doha scenario has negative implications for the overall macroeconomy, household welfare, and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households. (2) Free world trade has similar, but larger, impacts. (3) Domestic trade liberalization induces an expansion of agricultural and light manufacturing sectors, favorable changes in the domestic terms of trade. Although the short-run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest households the biggest winners in terms of welfare and poverty reduction. (4) Domestic liberalization effects far outweigh those of free world trade when these scenarios are combined. (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.Economic Theory&Research,Rural Poverty Reduction,Free Trade,Markets and Market Access

Implications of WTO Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short vs. Long Run

We examine the impacts of WTO agreements and domestic trade policy reforms on production, welfare and poverty in Bangladesh. A sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, is used allowing for long run analysis. The study is based on 2000 SAM of Bangladesh including fifteen production sectors, four factors of production (skilled and unskilled labour, agricultural and non-agricultural capital) and mine household groups (five in rural areas and four in urban areas) based on the year 2000 household survey. To examine the link between the macro effects and micro effects in terms of poverty we use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) the Doha scenario has negative implications for the overall macro economy, household welfare and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households; (2) Free world trade has similar, but larger, impacts; (3) Domestic trade liberalisation induces an expansion of agricultural and light manufacturing sectors, favourable changes in the domestic terms of trade. Although the short run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest household the biggest winners in terms of welfare and poverty reduction; (4) Domestic liberalisation effects far outweigh those of free world trade when these scenarios are combined; (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.Dynamic CGE model, International trade, Poverty, Bangladesh

Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis

Much current debate focuses on the role of growth in alleviating poverty. However, the majority of computable general equilibrium (CGE) models used in poverty and inequality analysis are static in nature. The inability of this kind of model to account for growth (accumulation) effects makes them inadequate for long run analysis of the poverty and inequality impacts of economic policies. They exclude accumulation effects and do not allow the study of the transition path of the economy where short run policy impacts are likely to be different from those of the long run. To overcome this limitation we use a sequential dynamic CGE microsimulation model that takes into account accumulation effects and makes it possible to study poverty and inequality through time. Changes in poverty are then decomposed into growth and distribution components in order to examine whether de-protection and factor accumulation are pro-poor or not. The model is applied to Senegalese data using a 1996 social accounting matrix and a 1995 survey of 3278 households. The main findings of this study are that trade liberalisation induces small increases in poverty and inequality in the short run as well as contractions in the initially protected agriculture and industrial sectors. In the long run, it enhances capital accumulation, particularly in the service and industrial sectors, and brings substantial decreases in poverty. However, a decomposition of poverty changes shows that income distribution worsens, with greater gains among urban dwellers and the non-poor

Public Expenditures on Education, Human Capital and Growth in Canada: An OLG Model Analysis

This paper uses a computable overlapping-generations model (OLG) to investigate the dynamic effects of public investment in human capital in the Canadian context of population ageing. The decisions of time allocation between learning, working and leisure activity are endogenously determined in the model and react differently to tax policy changes. Learning time and public expenditures on education both improve human capital accumulation and effective labour supply. The simulation results indicate that a tax-financed increase in public spending on education may have significant crowding-out effects in the short run. In the long run, however, higher education incentives may increase the rate of human capital accumulation which in turn could mitigate the negative effects of population ageing. Furthermore, economic and welfare effects analysis shows that the impact depends on the distortions implied by alternative tax instruments and the productivity of public expenditures on education

Libéralisation commerciale, croissance et pauvreté au Sénégal : une analyse à l’aide d’un MEGC microsimulé dynamique

An integrated sequential dynamic computable general equilibrium model is used to study the potential poverty and inequality effects of a complete tariff removal in Senegal. The model is calibrated with a 1996 social accounting matrix and a 1995 survey of 3,278 households. The outcomes indicate small short-run negative impacts in terms of welfare and poverty. In the long run, growth effects captured by the model bring an expansion of the industrial and service sectors and a substantial poverty decrease. However, the decomposition of the results shows that the contribution of the redistribution component to poverty alleviation is negative.Un modèle d’équilibre général microsimulé dynamique est utilisé pour étudier les effets potentiels de l’élimination complète des tarifs douaniers sur la pauvreté et l’inégalité au Sénégal. Le modèle est calibré à l’aide d’une matrice de comptabilité sociale de 1996 et d’une enquête auprès de 3278 ménages de 1995. Les résultats indiquent une baisse du bien-être et une augmentation de la pauvreté à court terme. A long terme, les effets de croissance captés par le modèle entraînent une expansion des secteurs de l’industrie et des services, et une diminution importante de la pauvreté. Toutefois, la décomposition des résultats montre que la contribution de la redistribution à l’allégement de la pauvreté est négative.Decaluwé Bernard, Cockburn John, Cissé Fatou, Annabi Nabil. Libéralisation commerciale, croissance et pauvreté au Sénégal : une analyse à l’aide d’un MEGC microsimulé dynamique . In: Économie & prévision, n°186, 2008-5. Économie du développement et de la transition, sous la direction de Pierre Malgrange et Patrick Plane. pp. 117-131