Multivariate Sensitivity Analysis with a Very Large CGE Model

The purpose of this technical paper is to illustrate a computationally cheap approach of conducting the multivariate sensitivity analysis with a very large and complex non-linear model RHOMOLO. We evaluated model responses to the different combinations of the following input data a) elasticity parameters that define behavioural responses of RHOMOLO b) labour- and total factor productivity parameters that characterize technology and c) scenario perturbations that represent policy decisions with regard to fiscal transfers. Such selection of scenario perturbations is of particular importance in the context of the EU Cohesion policies that are evaluated with RHOMOLO: in accordance with a number of objectives, fiscal contributions enter the model being translated into the factor productivity shocks. In order to bypass the dimensionality curse we resorted to the deterministic approach, assigning three levels to each input parameter and implemented the exercise in two steps: One-at-a-time variation of fifteen elasticity parameters for the different combinations of three scenario shocks permitted to attribute the highest influence ranking to the elasticities that define possibilities of substitution between labour and capital, among the domestic and imported goods and to the wage curve elasticity. For the influence ranking we employed the standard elasticity index and the Hoffman&Gardner sensitivity index. All-at-a-time variation of the most influential elasticity parameters and scenario shocks demonstrated that the total factor productivity and labour productivity shocks are the main drivers of model results, showing strong individual and weak interaction effects. Quantification of the individual and interaction effects of multivariate scenario perturbations was based on a three-level factorial design approach. We developed the algorithms for the parallel execution of the multiple instances of RHOMOLO that permit all computations to be finished in five hours. Our approach can be applied to virtually any static or dynamic model that is programmed in GAMS requiring minor modifications in the model code. With a pedagogical purpose we provide the detailed explanations of algorithms and the full listings of computer codes that were developed to implement this multivariate sensitivity analysis exercise. The comprehensive sensitivity analysis of the individual and interactions effects allows prioritize the econometric estimations of the most influential parameters, thus increasing precision of policy impact assessment.JRC.B.3-Territorial Developmen

Regional Impacts of non-R&D Innovation Expenditures across the EU Regions: Simulation Results Using the Rhomolo CGE Model

In the EU, a sizable part of innovation is attributed to the activities other than R&D such as purchases of advanced machinery, licenses, patents and minor modifications in products or processes. These non-R&D innovation activities receive substantial funding from the European cohesion policy (ECP). In this paper we applied the dynamic spatial computable general equilibrium model RHOMOLO to evaluate the ex-ante short and long run economic impacts of 2014-2023 non-R&D innovation subsidies allocated to the EU27 NUTS2 regions. The results of computer simulations show that the most notable welfare improvements (GDP, production and household consumption) were observed in the Eastern EU regions that receive the largest share of funding. Such outcome is in line with the goals of the European Cohesion Policy of stimulating economic convergence of the least developed regions. As was expected, the magnitude of macroeconomic impacts positively correlates with the amount of non-R&D subsidies allotted to the regions.JRC.J.2-Knowledge for Growt

Assessing Policy Options for the EU Cohesion Policy 2014-2020

In this paper we estimate the impact on GDP of Cohesion Policy 2014-2020 for 267 EU regions running a set of simulations with RHOMOLO, a spatial CGE model tailored for economic analysis at the subnational level. We do so by treating the different parts of Cohesion Policy as exogenous and independent shocks, which are first considered separately and then combined to estimate an overall effect. Our simulation suggests that European regions display significant heterogeneity in their deviations from the baseline due to Cohesion Policy, both in absolute terms and relative to the amounts received.JRC.J.2-Knowledge for Growt

Assessing Policy Options for the EU Cohesion Policy 2014-2020

In this paper we estimate the impact on GDP of Cohesion Policy 2014-2020 for 267 EU regions running a set of simulations with RHOMOLO, a spatial CGE model tailored for economic analysis at the subnational level. We do so by treating the different parts of Cohesion Policy as exogenous and independent shocks, which are first considered separately and then combined to estimate an overall effect. Our simulation suggests that European regions display significant heterogeneity in their deviations from the baseline due to Cohesion Policy, both in absolute terms and relative to the amounts received.JRC.J.2-Knowledge for Growt

RHOMOLO V3: A Spatial Modelling Framework

In this paper we provide the mathematical presentation of the RHOMOLO model. In addition, we perform some stylized and illustrative simulations with the aim to make the reader familiar with the economic adjustment mechanisms incorporated into the model. Essentially, we attempt to offer the reader and the potential users of the model an intuition of the transmission channels existing in the current version RHOMOLO. The analysis is kept simple to facilitate a better understanding of the model's findings. We simulate a permanent demand-side shock implemented separately for each of the 267 regions contained in the model. We repeat the same simulation under three alternative labour market closures and three different imperfectly competitive product market structures.JRC.B.3-Territorial Developmen

Supporting an Innovation Agenda for the Western Balkans - Tools and Methodologies

The Western Balkan region has significantly improved in terms of innovation performance in the last ten years. However, in catching up with other European regions, the focus of innovation efforts should be enhanced. Exports are still far more focused on medium- and low-technology products. Innovative efforts mostly accommodate traditionally strong sectors, which do not necessarily reflect the ideal competitiveness paths for economies in the region. Although some Western Balkan economies record increases in patent activity, patent intensity in the region is still low, while, on the other hand, scientific publication production displays a stable growth trend. While Western Balkan economies are at different stages in the formation of research and innovation (R&I) policy governance systems, national research and innovation policy frameworks are continuously being improved. The enhancement of governance in the area of R&I came as the result of increased capacity building activities in the region, as well as of the real needs emerging as a result of social and economic transformation. On the other hand, R&I systems in the Western Balkan economies need to continue shifting their focus towards businesses to provide better balance between public and private sector orientation. The Joint Research Centre of the European Commission is committed to supporting the shift in innovation policies and improvement of R&I efforts and governance in the Western Balkan economies through a number of tools and activities, allowing policy instruments to be matched with the specific needs of the economy. This approach seeks efficient governance mechanisms for R&I policy by reaching out to the business sector and other important actors of the innovation ecosystem. It determines sustainable development directions for economies and ensures the continuity of policy monitoring and evaluation cycles. This ambitious challenge is translated into four specific lines of activity: (i) the application of the smart specialisation methodology to design and implement innovation strategies; (ii) capacity-building activities for technology transfer, in particular through specialised workshops, tools and instruments specifically designed to assist the academic institutions in the regional economies; (iii) support to transnational collaboration and linkages in the context of EU macro-regional strategies; and (iv) data quality enhancement. The analysis of the development potential of the Western Balkan region in terms of economic, innovative and scientific capabilities in this report is supported with the good practices addressing specific challenges in the region.JRC.B.3-Territorial Developmen

Regional Impacts of non-R&D Innovation Expenditures across the EU Regions: Simulation Results Using the Rhomolo CGE Model

En la Unión Europea una parte importante de la innovación se atribuye a actividades que no son estrictamente I+D como la compra de maquinaria avanzada, compra de licencias y patentes y modificaciones menores en productos y procesos. Este tipo de actividades reciben una financiación importante por parte de la política de cohesión europea. En este trabajo se utiliza el modelo espacial de equilibrio general RHOMOLO para evaluar tanto a corto plazo como a medio plazo el impacto económico ex-ante de los subsidios a este tipo de actividades proporcionados por la política de cohesión europea en el período 2014-2020 a las regiones NUTS2 de la UE27. Los resultados de las simulaciones realizadas muestran que los mayores incrementos en los niveles de bienestar (PIB, producción, y consumo de los hogares) se observan en las regiones de los países del este de Europa que son aquellas que recibieron la mayor proporción de financiación. Además, la magnitud de los impactos macroeconómicos se correlaciona positivamente con la cantidad de subsidios asignados a las regiones

Regional Impacts of non-R&D Innovation Expenditures across the EU Regions: simulation Results Using the Rhomolo CGE Model

In the EU, a sizable part of innovation is attributed to the activities other than R&D such as purchases of advanced machinery, licenses, patents and minor modifications in products or processes. These non-R&D innovation activities receive substantial funding from the European cohesion policy (ECP). In this paper we applied the dynamic spatial computable general equilibrium model RHOMOLO to evaluate the ex-ante short and long run economic impacts of 2014-2020 non-R&D innovation subsidies allocated to the EU27 NUTS2 regions. The results of computer simulations show that the most notable welfare improvements (GDP, production and household consumption) were observed in the Eastern EU regions that receive the largest share of funding. Such outcome is in line with the goals of the European Cohesion Policy of stimulating economic convergence of the least developed regions. As was expected, the magnitude of macroeconomic impacts positively correlates with the amount of non-R&D subsidies allotted to the regions.En la Unión Europea una parte importante de la innovación se atribuye a actividades que no son estrictamente I+D como la compra de maquinaria avanzada, compra de licencias y patentes y modificaciones menores en productos y procesos. Este tipo de actividades reciben una financiación importante por parte de la política de cohesión europea. En este trabajo se utiliza el modelo espacial de equilibrio general RHOMOLO para evaluar tanto a corto plazo como a medio plazo el impacto económico ex-ante de los subsidios a este tipo de actividades proporcionados por la política de cohesión europea en el período 2014-2020 a las regiones NUTS2 de la UE27. Los resultados de las simulaciones realizadas muestran que los mayores incrementos en los niveles de bienestar (PIB, producción, y consumo de los hogares) se observan en las regiones de los países del este de Europa que son aquellas que recibieron la mayor proporción de financiación. Además, la magnitud de los impactos macroeconómicos se correlaciona positivamente con la cantidad de subsidios asignados a las regiones

Impactos en las regiones europeas de los gastos de innovación no considerados estrictamente I+D: resultados de simulaciones realizadas con el MEGA RHOMOLO

En la Unión Europea una parte importante de la innovación se atribuye a actividades que no son estrictamente I+D como la compra de maquinaria avanzada, compra de licencias y patentes y modificaciones menores en productos y procesos. Este tipo de actividades reciben una financiación importante por parte de la política de cohesión europea. En este trabajo se utiliza el modelo espacial de equilibrio general RHOMOLO para evaluar tanto a corto plazo como a medio plazo el impacto económico "ex-ante" de los subsidios a este tipo de actividades proporcionados por la política de cohesión europea en el período 2014-2020 a las regiones NUTS2 de la UE27. Los resultados de las simulaciones realizadas muestran que los mayores incrementos en los niveles de bienestar (PIB, producción, y consumo de los hogares) se observan en las regiones de los países del este de Europa que son aquellas que recibieron la mayor proporción de financiación. Además, la magnitud de los impactos macroeconómicos se correlaciona positivamente con la cantidad de subsidios asignados a las regiones.In the EU, a sizable part of innovation is attributed to the activities other than R&D such as purchases of advanced machinery, licenses, patents and minor modifications in products or processes. These non-R&D innovation activities receive substantial funding from the European cohesion policy (ECP). In this paper we applied the dynamic spatial computable general equilibrium model RHOMOLO to evaluate the ex-ante short and long run economic impacts of 2014-2020 non-R&D innovation subsidies allocated to the EU27 NUTS2 regions. The results of computer simulations show that the most notable welfare improvements (GDP, production and household consumption) were observed in the Eastern EU regions that receive the largest share of funding. Such outcome is in line with the goals of the European Cohesion Policy of stimulating economic convergence of the least developed regions. As was expected, the magnitude of macroeconomic impacts positively correlates with the amount of non-R&D subsidies allotted to the regions

RHOMOLO Model Manual: A Dynamic Spatial General Equilibrium Model for EU Regions and Sectors

This manual explains how to practically use the RHOMOLO model for policy impact assessment. We explain here how to read its modular structure, to retrieve its database and provide a step-by step guide to perform simulations using either its GAMS-IDE interface (for expert users) or a user-friendly graphical web-interface.JRC.J.2-Knowledge for Growt