Agribusiness, Agricultural Finance, Environmental Economics and Policy,

Bektasoglu, Beyhan

Brockmeier, Martina

Urban, Kirsten

English

Research Papers in Economics

 
 
 
 
GEWISOLA Annual Conference 2011  
 
28.-30.09.2011 
Martin-Luther-Universität Halle-Wittenberg,  
Institute of Agricultural and Nutritional Sciences,  
and 
Leibniz Institute of Agricultural Development in Central and Eastern Europe 
(IAMO) 
in Halle (Saale), Germany  
 
Effects of Aggregation and Model 
Structure on Model Linkages 
 
 
   
 
Beyhan BEKTASOGLU*, Kirsten URBAN* and Martina BROCKMEIER* 
 
 
* Institute of Agricultural Economics and Social Sciences in the Tropics and Subtropics 
International Agricultural Trade and Food Security (490B) 
University of Hohenheim, 70593 Stuttgart, Germany 
beyhan.bektasoglu@uni-hohenheim.de 
MARTIN-LUTHER-UNIVERSITÄT 
HALLE-WITTENBERG 
 1. Problem Statement 
Agricultural policy, affecting the food and agricultural sector from the global market down to 
the farm level, has become increasingly complex over the last century. As a result quantitative 
food and agricultural policy analysis turned to be an extensive research area which mostly 
requires practice of comprehensive analytical tools, i.e., a modeling framework that represents 
the food and agricultural sector at the global, national and farm level. 
There is an extensive literature discussing the utilization of model linkages and the interaction 
between  linked  models.  However,  in  this  study  we  only  concentrate  on  a  selection  of 
characteristics of model linkages. In particular, our focus is on aggregation problems which 
arise due to the transfer of results between two adjacent models that are differently aggregated 
at sectoral or regional level. Nevertheless, analysis showed that sector disaggregation leads to 
more  divergence  results  rather  than  the  regional  disaggregation.  Furthermore,  in  order  to 
reveal interaction with other model characteristics, we are taking the difference in a partial 
(PE) and general equilibrium (GE) model structure into account by pair wise combining the 
four characteristics (i.e., disaggregation, aggregation, PE and GE).  
We also review the literature to allow for comparison between our current findings and those 
coming from the literature. This overview summarizes the results by focusing on a selective 
number of variables, namely the effects on trade, price and output as well as welfare. 
2. Modeling Framework and Methodology 
The analysis in this paper is based on the GTAP modeling framework. We start our analysis 
by employing version 7 of the GTAP data base (NARAYANAN and WALMSLEY, 2008) to create 
data bases with different levels of aggregation. The first data base is highly disaggregated at 
the sectoral level and includes all 20 available food and agriculture sectors. On the contrary, 
the second data base is highly aggregated in the food and agricultural sector and includes only 
4 sectors, namely grains, crops, meat and livestock products as well as processed food. Both 
data  bases  carry  identical  8  regions.  In  order  to  expose  the  regional  disaggregation 
differences, the databases with 8 regions are disaggregated to 11 regions. The second set of 
characteristics (PE and GE) is achieved by HERTEL (1992). PE models are therefore obtained 
from  the  GE-GTAP  model  by  exogenizing  prices  and  outputs  of  nonfood  tradable 
commodities,  income  as  well  as  the  non-land  primary  factor  rental  rates  of  the  mobile 
endowment commodities. 
3. Experiment Results 
Our  results  of  an  EU  agricultural  trade  liberalization  show  comparable  outcomes  of 
experiments analyzing the impact of removed export subsidies and import tariffs of the EU-
27's food and agriculture sector. Within these experiments, we used a pair wise combination 
of different levels of aggregation (DIS and AGG) and model structure (GE and PE).  
In terms of regional disaggregation, we experience very low differences in all simulations. 
Hence, the following analyses are focused on the sector disaggregation. For trade balance 
effects, we see that the results of GE-AGG are much more pronounced than the ones which 
are based on GE-DIS at the sectoral level. Particularly the crops sector shows results deviating 
by almost 100% followed by the processed food sector. The same differences can also be seen 
between the PE-AGG and the PE-DIS version of the GTAP framework. Furthermore, the 
comparison of the GE and PE results shows that the discrepancy based on the model structure 
is very low compared to the effect due to the aggregation.  The relatively lower differences due to model structure can be explained by the initiating 
shock which is only given to the EU's food and agricultural sector. Thus, exogenous variables 
in the PE model are only marginally affected. A higher shock to the agricultural sector or 
shocking the non-agricultural sector would therefore lead to a more pronounced difference 
between the PE and GE models. On the other hand, the differences due to sector aggregation 
are based on the false competition effect (NARAYANAN et al., 2009). High aggregation causes 
an artificial competition which leads to a higher own-price elasticity of source-wise imports 
with  respect  to  their  corresponding  prices  in  the  GE-AGG  and  PE-AGG  versions. 
Accordingly; we observe a much higher trade effect in the GE-AGG which is initiated by the 
value shares of source specific imports in aggregated imports across sources. As an example, 
it is particularly striking that Sub Saharan Africa's change in the trade balance differs by more 
than 100% between GE-AGG and GE-DIS.  
With regard to prices, we conclude that aggregation differences at the sector level are higher 
than model structure differences. While changes in prices are higher in GE than the ones in 
PE; controversially the changes in quantities are lower in GE than PE changes. Thus, this 
conclusion is applicable for disaggregation at both levels. 
In  accordance  with  the  literature  overview,  we  also  conclude  that  GE  models  as  well  as 
disaggregated models give higher welfare changes both at sectoral and regional level. Since 
GE models capture the whole economy and aggregated models underestimate the heights of 
tariffs, PE-AGG delivers the lowest welfare levels whereas GE-DIS gives highest welfare 
gains. However, it  can  clearly be  seen that the total  welfare change is  dominated by the 
allocative efficiency effect. 
Our simulation results lead to the conclusion that sector disaggregation is the origin of the 
differences in results rather than regional disaggregation. The experimental set up (e.g., same 
model and data) also enables us to clearly derive the conclusion that the bias in results due to 
aggregation is much higher than the one due to model specification. Furthermore, most of the 
differences in the results can be traced back to false competition (trade effects) and averaging 
of tariffs (welfare effects) which are both effects resulting from the sector aggregation. If our 
GE-DIS version of the GTAP framework is used as a reference point, then the GE-AGG 
version overstates the EU'’s trade balance effect of processed food by 32%, whereas it is only 
5% in the case of PE-DIS. Accordingly, it would be appropriate to develop a measure for 
false competition and evaluate it regularly in simulations since it has significant effect on 
results.  
References 
HERTEL, T. W. (1992): Partial vs. General Equilibrium Analysis of Trade Policy Reform. The 
Journal of Agricultural Economics Research 44 (3) 3-14.  
NARAYANAN,  B.  G.  and  WALMSLEY,  T.  L.  (eds)  (2008):  Global  Trade,  Assistance,  and 
Production. The GTAP 7 Data Base, West Lafayette (USA), Purdue University, Center 
for Global Trade Analysis, Department of Agricultural Economics. 
NARAYANAN, B. G., HERTEL, T. W. and HORRIDGE, J. M. (2009): Disaggregated Data and 
Trade Policy Analysis: The Value of Linking Partial and General Equilibrium Models. 
GTAP Working Paper 56. West Lafayette (USA), Purdue University, Center for Global 
Trade Analysis, Department of Agricultural Economics. 

Effects of Aggregation and Model Structure on Model Linkages

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