Climate Change and Economic Growth: Impacts and Interactions

An integrated assessment model (ENVISAGE), including a CGE-based economic module and a climate module, is used to assess the effects of a variety of economic impacts induced by climate change. These impacts include: sea level rise, variations in crop yields, water availability, human health, tourism, energy demand. Two scenarios are compared: a baseline growth path, disregarding any climate change effect, and a counterfactual case, accounting for the impacts. The model assesses the overall magnitude of the impacts, their regional distribution, and the contribution of each specific impact to the overall variation of income and welfare. Results (e.g., on real GDP) show that climate change impacts are substantial, especially for developing countries and in the long run.Climate Change, Integrated Assessment, Dynamic General Equilibrium.

Global Merchandise Trade Reform: Comparing results with the LINKAGE Model

This paper summarizes the key findings from simulating the full removal of all remaining trade barriers and domestic support using the World Bank’s global trade model, known as LINKAGE. In its default configuration, the Linkage model is dynamic recursive with the measured gains assessed in 2015 relative to a baseline for the global economy. The gains from this scenario are substantial, particularly for developing countries. The scenario also highlights the importance of agriculture as a source of the gains— for both developed and developing countries—and the importance of developing country reform as a source of their own gains. A second part of the paper looks at some of the key underlying assumptions of the standard LINKAGE model. First, the paper shows the relative importance of using a dynamic framework as opposed to a simple comparative static framework. Second, the paper shows how the trade reform results are impacted by changes in specific assumptions—the level of the trade elasticities, known to be important in assessing trade reform, the role of land supply—both its relative mobility across sectors and its aggregate responsiveness to changes in its underlying rental value—, and labor market closure—fixed versus flexible wages. There is no doubt that the aggregate income results are sensitive to these underlying assumptions. However, conclusions regarding the structural impacts are more robust, and they also tend to be much greater than the average income impact

A General Equilibrium Analysis of the Interplay between Foreign Direct Investment and Trade Adjustments

The theoretical literature on trade and foreign direct investment (FDI) indicates that they could be either substitutes or complements. The empirical evidence on U.S.-Japan and Asia-Pacific Economic Cooperation (APEC) countries suggests that trade and FDI exhibit a complementary relationship. In this paper, we employ a multi-region, multisectoral computable general equilibrium (CGE) model that incorporates FDI to evaluate the impact of APEC trade and investment liberalization on economic welfare and the interplay between FDI and trade adjustments.APEC liberalization, foreign direct investment, CGE model

Regional Integration, Sectoral Adjustments and Natural Groupings in East Asia

Although East Asian countries were relatively inactive in signing free trade agreements (FTAs) until the end of 1990s, a number of FTAs involving East Asian countries have been signed since the turn of the century. Because sectoral interests can exert significant influence on policy negotiations, the sectoral results would be particularly important for political economy considerations. The objective of this study is to compare welfare gains and sectoral adjustments resulting from various FTA scenarios in East Asia using a dynamic global computable general equilibrium (CGE) model. The RCA rankings of commodities with various FTA scenarios and those with the global trade liberalization are correlated to examine how gnaturalh each grouping would be. The results suggest that the ASEAN+3 FTA, with relatively large welfare gains and small structural adjustments, could be a facilitating intermediate step towards global free trade. Some of the smaller FTAs, such as the ASEAN-China and ASEAN-Korea FTAs, would result in large structural adjustments for ASEAN countries.Regional integration; FTA; RCA; East Asia; CGE model

Deep Integration and Its Impacts on Nonmembers: EU Enlargement and East Asia

Ten countries-most completing their transition from socialist-based economies to market economies-became the EU members in 2004, two additional countries are slated to join the Union in 2007, and a few others are expected to become members at some future dates. Despite a relatively small economic size of the new member, acceding and candidate countries, this type of deep integration can have non-negligible effects on countries outside of the preferential zone as the reduction in barriers across partners leads to a re-orientation of trade. In this study, we evaluate the extent of trade adjustments and the economic impacts it will have on the East Asian economies using a dynamic computable general equilibrium (CGE) model. The overall macroeconomic effects on East Asia are small. There is some trade diversion, but there may be an opportunity to increase market penetration in some sectors of the expanding EU for which East Asia has a marked comparative advantage. This paper also assesses the relative importance of linking trade openness to productivity and lowering trade costs between the new member, acceding and candidate countries and the EU-15.EU enlargement, East Asia, CGE model

Effects of Multilateral and Preferential Trade Policy Reform in Africa: The Case of Uganda

This paper estimates the effects on production, trade and economic welfare of current trade policy regimes throughout the world on Uganda relative to other economies, as a benchmark against which to examine various multilateral and preferential trade policy scenarios that might emerge over the next decade as part of the WTOÂ’s Doha Round and from the expected move later this decade towards Economic Partnership Agreements with the European Union. The results suggest modest gains or worse for Uganda, in part because it already has low tariffs and ready preferential access to richcountry markets. Several important caveats to this type of analysis are stressed though, before drawing out some trade and policy implications for Uganda.Trade policy reform, multilateral negotiations, preferential trade, computable general equilibrium, developing countries

Global Economic Prospects for Increasing Developing Country Migration into Developed Countries

Global labor markets have evolved dramatically in the last several decades and will continue to so for some time to come, driven by changing population demographics, economic globalization, dramatic changes in transportation technology, and accelerating institutional change. All these characteristics of migration make it an essential policy issue for the human development agenda. The United Nations Human Development Report for 2009 intends to provide a forward-looking assessment of global labor market dynamics, with particular reference to the effects of increased labor mobility on global patterns of employment and output. To date, the most rigorous analysis of this subject is the World Bank Global Prospect Group’s forecasts with their Global Economic Prospects Linkage model. This report describes how an update of the GEP model captures more detailed information on global labor movements and heterogeneity, and reports new projections on global migration patterns. These results suggest complex market interactions between migrants and resident workers, whether native or migrant, and between labor and other factors of production. For example reducing migration raises the premium on migrant labor in the destination countries, while lowering the relative return to capital. The first effect makes for higher real income, consumption, and remittances for migrants of both types. For native populations in high income countries, the negative capital income effect dominates the wage effect of reduced competition from migrants. It is perhaps ironic that reducing labor competition is more beneficial to migrants, who lack the capital income and thereby gain absolutely from rising relative wages. Of course one of the primary demand drivers for migrants is the desire to profit from using capital resources more fully within high income economies. In OECD economies, pension schemes guarantee that a significant part of these profits accrue indirectly to native workers. Taken together, these results strongly support the argument that migration has beneficial growth effects on global real economic activity, improving the efficiency of international resource allocation for the benefit of both sending and receiving countries. However, these reassuring aggregate results mask more complex interactions in domestic labor markets, and there will inevitably be both winners and losers from the ensuing structural adjustments. Having said this, the existence of substantial aggregate gains, particularly new fiscal resources for the public sector, suggests the prospect of adjustment assistance to offset adverse impacts.Migration, globalization, North-South

Global Economic Prospects for Increasing Developing Country Migration into Developed Countries

Global labor markets have evolved dramatically in the last several decades and will continue to so for some time to come, driven by changing population demographics, economic globalization, dramatic changes in transportation technology, and accelerating institutional change. All these characteristics of migration make it an essential policy issue for the human development agenda. The United Nations Human Development Report for 2009 intends to provide a forward-looking assessment of global labor market dynamics, with particular reference to the effects of increased labor mobility on global patterns of employment and output. To date, the most rigorous analysis of this subject is the World Bank Global Prospect Group’s forecasts with their Global Economic Prospects Linkage model. This report describes how an update of the GEP model captures more detailed information on global labor movements and heterogeneity, and reports new projections on global migration patterns. These results suggest complex market interactions between migrants and resident workers, whether native or migrant, and between labor and other factors of production. For example reducing migration raises the premium on migrant labor in the destination countries, while lowering the relative return to capital. The first effect makes for higher real income, consumption, and remittances for migrants of both types. For native populations in high income countries, the negative capital income effect dominates the wage effect of reduced competition from migrants. It is perhaps ironic that reducing labor competition is more beneficial to migrants, who lack the capital income and thereby gain absolutely from rising relative wages. Of course one of the primary demand drivers for migrants is the desire to profit from using capital resources more fully within high income economies. In OECD economies, pension schemes guarantee that a significant part of these profits accrue indirectly to native workers. Taken together, these results strongly support the argument that migration has beneficial growth effects on global real economic activity, improving the efficiency of international resource allocation for the benefit of both sending and receiving countries. However, these reassuring aggregate results mask more complex interactions in domestic labor markets, and there will inevitably be both winners and losers from the ensuing structural adjustments. Having said this, the existence of substantial aggregate gains, particularly new fiscal resources for the public sector, suggests the prospect of adjustment assistance to offset adverse impacts.Migration, globalization, North-South

Measuring the impacts of global trade reform with optimal aggregators of distortions

Traditional weighted-average measures of trade distortions are widely used in analyzing global and regional reforms, despite well-known deficiencies. This paper develops and applies optimal aggregators for the real-world case of multiple countries and commodities with much more detailed information on trade than on production and consumption. The approach reflects the fact that different aggregators are needed for expenditure on imported goods and for tariff revenues, and allows for incorporation of both intensive and extensive margins of adjustment to reform. Applications confirm that the technique is straightforward enough for widespread use, and point to close to a doubling of the welfare gains at the intensive margin when using the highest possible level of international commodity disaggregation, with larger gains in developing regions than in the industrial countries. The measured income gains increase along the entire path of liberalization, with slightly larger increases in the earlier stages, where the gaps between the responses of the expenditure and tariff revenue aggregators are largest. Sensitivity analysis suggests that, for global trade reform, the ease of substitution between tariff lines is much more important than that between varieties from different countries.Free Trade,International Trade and Trade Rules,Trade Policy,Economic Theory&Research,Debt Markets

Global impacts of Doha trade reform scenarios on poverty

The authors illustrate some of the potential consequences of the World Trade Organization's Doha Round of multilateral trade negotiations on incomes and poverty globally. Using the global LINKAGE model to generate changes in domestic and international prices that have a direct impact on factor incomes and consumer prices, they estimate the change in real income at the poverty line that would accompany various reform scenarios. When accompanied by additional information about the elasticity of poverty with respect to income, this provides an estimate of the change in poverty by country. Under most liberalization scenarios considered, unskilled wages rise more than average incomes, but the estimated impact on global poverty is modest, especially if developing countries are unwilling to undertake much reform.