A COMPUTABLE GENERAL EQUILIBRIUM APPROACH TO TRADE AND ENVIRONMENTAL MODELLING IN THE MALAYSIAN ECONOMY

Environmental pollution is now a serious problem in many developing countries. One approach to mitigate the problem is to implement various pollution control policies. However, due to a lack of adequate quantitative models, the economic impacts and effectiveness of many pollution control policies are still unknown. Therefore, there is a greater need to know whether economic liberalization, trade, environment and social welfare can be joined in one direction under environmental taxation and policies. Empirical studies for developed countries reveal that imposition of a carbon tax would decrease CO2 emissions significantly and might not dramatically reduce economic growth. To our knowledge there has not been any research done to simulate the economic impact of emission control policies in Malaysia. Studying the potential economic impact of emission control policies is very important because inappropriate policies that reduce carbon emission may at the same time reduce highly economic growth. It is thus important to find the correct pollution tax that could be imposed such that environmental pollution is reduced at the same time does not dampen economic growth. The method developed for this study is applied computable general equilibrium model (MYCGE) for imposing environmental taxation policies in the Malaysian economy. Three simulations were carried out using a Malaysian Social Accounting Matrix. The first simulation is related to the trade based and the last two are carbon based simulations. The model results indicate that further trade liberalization is not sensitive in the Malaysian economy. Particularly, the reasons could be attributed to the fact that Malaysian export duty is already low and Malaysian trade policy already highly liberalized. The carbon tax policy illustrates that a 1.21 percent reduction of carbon emission (via carbon tax) reduces the nominal GDP by 0.82 percent and exports by 2.08 percent; a 2.34 percent reduction of carbon emission reduces the nominal GDP by 1.90 percent and exports by 3.97 percent and a 3.40 percent reduction of carbon emission reduces the nominal GDP by 3.17 percent and exports by 5.707 percent.Trade, Air Emission, Environmental General Equilibrium, Malaysian Economy

Impacts of External Price Shocks on Malaysian Macro Economy-An Applied General Equilibrium Analysis

This paper examines the impacts of external price shocks in the Malaysian economy. There are three simulations are carried out with different degrees of external shocks using Malaysian Social Accounting Matrix (SAM) and Computable General Equilibrium (CGE) analysis. The model results indicate that the import price shocks, better known as external price shocks by 15% decreases the domestic production of building and construction sector by 25.87%, hotels, restaurants and entertainment sector by 12.04%, industry sector by 12.02%, agriculture sector by 11.01%, and electricity and gas sector by 9.55% from the baseline. On the import side, our simulation results illustrate that as a result of the import price shocks by 15%, imports decreases significantly in all sectors from base level. Among the scenarios, the largest negative impacts goes on industry sectors by 29.67% followed by building and construction sector by 22.42%, hotels, restaurants and entertainment sector by 19.45%, electricity and gas sector by 13.%, agriculture sector by 12.63% and other service sectors by 11.17%. However significant negative impact goes to the investment and fixed capital investment. It also causes the household income, household consumption and household savings down and increases the cost of livings in the economy results in downward social welfare.External Price Shocks, Applied General Equilibrium Analysis, Malaysian economy

Macroeconomic effects of carbon dioxide emission reduction: a computable general equilibrium analysis for Malaysia

This study analyzes the macroeconomic effects of limiting carbon emissions using computable general equilibrium (CGE) model in the Malaysian economy. Doing so, we developed an environmental computable general equilibrium model and investigate carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using a Malaysian Social Accounting Matrix. The carbon tax policy illustrates that a 1.21% reduction of carbon emission reduces the nominal GDP by 0.82% and exports by 2.08%; a 2.34% reduction of carbon emission reduces the nominal GDP by 1.90% and exports by 3.97%and a 3.40% reduction of carbon emission reduces the nominal GDP by 3.17% and exports by 5.71%. Imposition of successively higher carbon tax results in increased government revenue from baseline by 26.67%, 53.07% and 79.28% respectively. However, fixed capital investment increased in scenario 1a (1st) by 0.43% but decreased in scenarios 1b (2nd) and 1c (3rd) by 0.26% and 1.79% respectively from the baseline. According to our findings policy-makes should consider initial (1st) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP and government revenue.Emission; Environmental General Equilibrium; Malaysian Economy

A CGE Analysis of the Economic Impact of Output-Specific Carbon Tax on the Malaysian Economy

Environmental pollution is an emerging issue in many developing countries and its mitigation is increasingly being integrated into national development policies. One approach to mitigate the problem is by implement pollution control policies in the form of pollution tax or clean technology incentives. Empirical studies for developed countries reveal that imposition of an carbon tax would decrease CO2 emissions significantly and do not dramatically reduce economic growth. However, the same result may not apply for small-open developing countries such as Malaysia. The objective of this study is to quantify the impact of pollution tax on the Malaysian economy under the backdrop of trade liberalization. To examine the economic impact and effectiveness of carbon tax, a single-country, static Computable General Equilibrium model for Malaysia is constructed. The model is extended to incorporate output-specific carbon tax elements. Three simulations were carried out using a Malaysian 2000 Social Accounting Matrix. The first simulation examines the impact of halving the baseline tariff and export duty while the second solely focused on the impact of output-specific carbon tax. The third simulation combines both former scenarios. The model results indicate that the Malaysian economy is not sensitive to further liberalization. The reason could be attributed to the fact that Malaysian export duty is already low. Additionally, simulation results also indicate that while imposition of carbon tax reduces carbon emission, it also results in lower GDP and trade.Trade, Air Emission, Environmental General Equilibrium, Malaysian Economy

An alternative approach to identify key industries: issues to selection criteria

Within a process of modeling exercise, this study aimed to understand appropriate selection criteria to identify key industries. There are many key sector identification linkage measures in the subject matter and sensitivity issue among them can be tricky because many of these measures differ only slightly but can result in outcomes that are quite dissimilar. With this background, we proposed an alternate approach that helps to resolve this issue. The proposed approach utilizes in this study by five sub-methods and high degree of the frequency of their occurrences in sub-methods to determine the key sectors. The study approach is applied to Malaysia as the public sector investment remains a large share in the national economy, like other developing countries, and the correct identification is still a challenge for sectoral planning. The experiences from this study can be used to guide appropriate public investment in Malaysia and elsewhere with similar economic forms

A COMPUTABLE GENERAL EQUILIBRIUM APPROACH TO TRADE AND ENVIRONMENTAL MODELLING IN THE MALAYSIAN ECONOMY

Environmental pollution is now a serious problem in many developing countries. One approach to mitigate the problem is to implement various pollution control policies. However, due to a lack of adequate quantitative models, the economic impacts and effectiveness of many pollution control policies are still unknown. Therefore, there is a greater need to know whether economic liberalization, trade, environment and social welfare can be joined in one direction under environmental taxation and policies. Empirical studies for developed countries reveal that imposition of a carbon tax would decrease CO2 emissions significantly and might not dramatically reduce economic growth. To our knowledge there has not been any research done to simulate the economic impact of emission control policies in Malaysia. Studying the potential economic impact of emission control policies is very important because inappropriate policies that reduce carbon emission may at the same time reduce highly economic growth. It is thus important to find the correct pollution tax that could be imposed such that environmental pollution is reduced at the same time does not dampen economic growth. The method developed for this study is applied computable general equilibrium model (MYCGE) for imposing environmental taxation policies in the Malaysian economy. Three simulations were carried out using a Malaysian Social Accounting Matrix. The first simulation is related to the trade based and the last two are carbon based simulations. The model results indicate that further trade liberalization is not sensitive in the Malaysian economy. Particularly, the reasons could be attributed to the fact that Malaysian export duty is already low and Malaysian trade policy already highly liberalized. The carbon tax policy illustrates that a 1.21 percent reduction of carbon emission (via carbon tax) reduces the nominal GDP by 0.82 percent and exports by 2.08 percent; a 2.34 percent reduction of carbon emission reduces the nominal GDP by 1.90 percent and exports by 3.97 percent and a 3.40 percent reduction of carbon emission reduces the nominal GDP by 3.17 percent and exports by 5.707 percent

Macroeconomic effects of carbon dioxide emission reduction: a computable general equilibrium analysis for Malaysia

This study analyzes the macroeconomic effects of limiting carbon emissions using computable general equilibrium (CGE) model in the Malaysian economy. Doing so, we developed an environmental computable general equilibrium model and investigate carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using a Malaysian Social Accounting Matrix. The carbon tax policy illustrates that a 1.21% reduction of carbon emission reduces the nominal GDP by 0.82% and exports by 2.08%; a 2.34% reduction of carbon emission reduces the nominal GDP by 1.90% and exports by 3.97%and a 3.40% reduction of carbon emission reduces the nominal GDP by 3.17% and exports by 5.71%. Imposition of successively higher carbon tax results in increased government revenue from baseline by 26.67%, 53.07% and 79.28% respectively. However, fixed capital investment increased in scenario 1a (1st) by 0.43% but decreased in scenarios 1b (2nd) and 1c (3rd) by 0.26% and 1.79% respectively from the baseline. According to our findings policy-makes should consider initial (1st) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP and government revenue

A CGE Analysis of the Economic Impact of Output-Specific Carbon Tax on the Malaysian Economy

Environmental pollution is an emerging issue in many developing countries and its mitigation is increasingly being integrated into national development policies. One approach to mitigate the problem is by implement pollution control policies in the form of pollution tax or clean technology incentives. Empirical studies for developed countries reveal that imposition of an carbon tax would decrease CO2 emissions significantly and do not dramatically reduce economic growth. However, the same result may not apply for small-open developing countries such as Malaysia. The objective of this study is to quantify the impact of pollution tax on the Malaysian economy under the backdrop of trade liberalization. To examine the economic impact and effectiveness of carbon tax, a single-country, static Computable General Equilibrium model for Malaysia is constructed. The model is extended to incorporate output-specific carbon tax elements. Three simulations were carried out using a Malaysian 2000 Social Accounting Matrix. The first simulation examines the impact of halving the baseline tariff and export duty while the second solely focused on the impact of output-specific carbon tax. The third simulation combines both former scenarios. The model results indicate that the Malaysian economy is not sensitive to further liberalization. The reason could be attributed to the fact that Malaysian export duty is already low. Additionally, simulation results also indicate that while imposition of carbon tax reduces carbon emission, it also results in lower GDP and trade

Impacts of External Price Shocks on Malaysian Macro Economy-An Applied General Equilibrium Analysis

This paper examines the impacts of external price shocks in the Malaysian economy. There are three simulations are carried out with different degrees of external shocks using Malaysian Social Accounting Matrix (SAM) and Computable General Equilibrium (CGE) analysis. The model results indicate that the import price shocks, better known as external price shocks by 15% decreases the domestic production of building and construction sector by 25.87%, hotels, restaurants and entertainment sector by 12.04%, industry sector by 12.02%, agriculture sector by 11.01%, and electricity and gas sector by 9.55% from the baseline. On the import side, our simulation results illustrate that as a result of the import price shocks by 15%, imports decreases significantly in all sectors from base level. Among the scenarios, the largest negative impacts goes on industry sectors by 29.67% followed by building and construction sector by 22.42%, hotels, restaurants and entertainment sector by 19.45%, electricity and gas sector by 13.%, agriculture sector by 12.63% and other service sectors by 11.17%. However significant negative impact goes to the investment and fixed capital investment. It also causes the household income, household consumption and household savings down and increases the cost of livings in the economy results in downward social welfare

Macroeconomic effects of carbon dioxide emission reduction: a computable general equilibrium analysis for Malaysia

This study analyzes the macroeconomic effects of limiting carbon emissions using computable general equilibrium (CGE) model in the Malaysian economy. Doing so, we developed an environmental computable general equilibrium model and investigate carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using a Malaysian Social Accounting Matrix. The carbon tax policy illustrates that a 1.21% reduction of carbon emission reduces the nominal GDP by 0.82% and exports by 2.08%; a 2.34% reduction of carbon emission reduces the nominal GDP by 1.90% and exports by 3.97%and a 3.40% reduction of carbon emission reduces the nominal GDP by 3.17% and exports by 5.71%. Imposition of successively higher carbon tax results in increased government revenue from baseline by 26.67%, 53.07% and 79.28% respectively. However, fixed capital investment increased in scenario 1a (1st) by 0.43% but decreased in scenarios 1b (2nd) and 1c (3rd) by 0.26% and 1.79% respectively from the baseline. According to our findings policy-makes should consider initial (1st) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP and government revenue