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Demonstration of capabilities of a bi- regional CGE model to assess impacts of rural development policies (RURMOD-E) Demonstration Workshop Brussels, 26.11.2008.

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Presentation on theme: "Demonstration of capabilities of a bi- regional CGE model to assess impacts of rural development policies (RURMOD-E) Demonstration Workshop Brussels, 26.11.2008."— Presentation transcript:

1 Demonstration of capabilities of a bi- regional CGE model to assess impacts of rural development policies (RURMOD-E) Demonstration Workshop Brussels, 26.11.2008

2 THE STUDY REGIONS AND THEIR REFLECTION IN THE MODEL STRUCTURE Eudokia Balamou Department of Economics University of Patras

3 General Characteristics of the Study Areas (Greek – Czech Study areas) Characteristics of the Case Study Area SAMs SAM accounts (activities, commodities, factors, households, other accounts) Key economic indicators from the SAM Calibration and Elasticities Closure Rules STRUCTURE OF PRESENTATION

4 GREECE: ARCHANES-HERAKLION LOCATION: North Central Crete Hinterland of the Prefecture of Heraklion 17 km from the capital of the Prefecture (Heraklion) i.e our URBAN area (approx. 30min.) ADMINISTRATIVE LEVEL: Municipality of Archanes – City of Heraklion (both NUTS 5) Prefecture of Heraklion (NUTS 3) Area increasingly affected by daily commuting towards adjacent areas. GENERAL CHARACTERISTICS

5 TOTAL AREA: 31.536 square kilometers (28 square kilometers of agricultural land) LFA: 92,20 % of total area LAND USE: Agriculture (including fallow land)55.2% Forest and Forest land 33.7% (including non-primary forest) Settlements (3.5 square kilometers) 11.1% TOTAL POPULATION: Archanes 4 548 people 1991-2001: 6.3% Heraklion: 137 711 1991-2001: 14.2% GENERAL CHARACTERISTICS

6 ECONOMIC ACTIVITY GENERAL CHARACTERISTICS Archanes Agriculture: vine and olive cultivation Secondary: SMEs which process local farm output Tertiary: provides off-farm income. Trade – Tourism Heraklion: Large number of industries / modern tertiary sector

7 GZECH REPUBLIC: DISTRICT BRUNTAL LOCATION: Northeast border of the Moravia-Silesia Regions Long distance from the capital of Czech (350km) TOTAL AREA: 5535 square kilometers (7% of the country) LAND USE: Agriculture land more than 50% Forest and Forest land more than 35% Settlements approx. 10% TOTAL POPULATION: Bruntal 105 139 people 1991-2001: 0.69% Ostrava 316 744 1991-2001: -3.25% GENERAL CHARACTERISTICS

8 ECONOMIC ACTIVITY: Industrial – Agricultural area Bruntal Primary: 437 firms 91% in agriculture and 9% forestry Agriculture: 398 firms crops and animal production Very specialized firms are oriented on cattle, sheep goats and horse breeding and the growing of ornamental wood Secondary: metal and other manufacturing Tertiary: Trade - Tourism GENERAL CHARACTERISTICS

9 Ostrava (urban centre) High share of heavy industry (especially coal mining, ferrous metallurgy and heavy engineering) Agricultural production and tertiary sector performs only additional function But due to a decrease in heavy industry the status of administrative, educational and cultural centre of the region is beginning to dominate GENERAL CHARACTERISTICS

10 Czech Republic: District Bruntal Economically under-developed area with a high environmental endowment, but with under- developed recreational potential. Greece: Archanes-Heraklion Agriculture very important for the rural part of the area (Archanes). Rich potential for tertiary economic activity (particularly in tourism). Challenges include increasing value added of farm products (processing) and upgrading quality standards. Development policy objective: increase links between agriculture and the rest of the local economy. GENERAL CHARACTERISTICS

11 Characteristics of the Case Study Area SAMs GREECE: ARCHANES-HERAKLION Activities Spatial Distinction Rural Area (Archanes) Agriculture Food Processing Other Manufacturing Construction Trade Hotels & Restaurants Other Private Services Public Services Rural Household Services Urban Area (Heraklion) Agriculture Manufacturing Construction Trade Hotels & Restaurants Private Services Public Services Transport (rural and urban combined) Urban Household Services

12 Characteristics of the Case Study Area SAMs Commodities Non-spatial distinction Wholesale Trade Retail Trade Accommodation Restaurants & Catering Transportation Banking and Finance Other Private Services Public Services Rural Household Services Urban Household Services Grape Production Olive Oil Other Agricultural Products Wine Other Food and Drinks Timber and Furniture Metal Products Clothing and Footwear Other Manufacturing Construction

13 Characteristics of the Case Study Area SAMs Factors of Production Spatial distinction Unskilled Labour – Rural Skilled Labour – Rural Unskilled Labour – Urban Skilled Labour – Urban Capital (rural and urban combined) Land Agricultural – Rural Land Housing – Rural Land Housing – Urban Agricultural Capital Agricultural Rents

14 Characteristics of the Case Study Area SAMs Households are defined by: Rural vs. Urban Poor/Middle-Income vs. Wealthy Commuter (to the other part of the study area) vs. Commuter to the Rest of the World (i.e. outside the study area) vs. Other (non-commuter) Agricultural Rest-of-World Commuters and Agricultural households were not distinguished by income Tourist: shows the tourist demand thus 13 household accounts are defined as follows:

15 Characteristics of the Case Study Area SAMs Poor/Middle-Income Rural Commuter Wealthy Rural Commuter Rural Commuter to Rest of the World Poor/Middle-Income Rural Other Wealthy Rural Other Rural Agricultural Households Poor/Middle-Income Urban Commuter Wealthy Urban Commuter Urban Commuter to Rest of the World Poor/Middle-Income Urban Other Wealthy Urban Other Urban Agricultural Households Representative Tourist

16 Characteristics of the Case Study Area SAMs Direct Taxes: on firms and households Indirect Activity Taxes: on firms, including community taxes and other indirect taxes on firms, e.g. excise duties, petrol taxes. Also it includes subsidies as a negative tax Indirect Sales Taxes: on commodities. Government: not separately distinguished from central government Rest of the World Account: gives detail of commodity imports and exports. Savings/Investments Margins: trade and transport

17 Key Economic Indicators Population Area (Km 2 ) Gross Domestic Product (GDP) Total ml Euro Per capita Euro Rural Area (Archanes) 4 54831.52665.2414,345 Urban Area (Heraklion) 137 711108.8001,458.8410,593 Total Study Area 142 259140.3261,524.0810,711 Prefecture Heraklion 292 4892,640.834,56715,724 Greece (national) 10 706 290131,504180,22116,507

18 Key Economic Indicators Urban Sectors Output value RankTotal Value Added RankEmploy- ment Rank Agriculture 64.428853.264827308 Manufacturing 243.530498.437757894 Construction 219.6766103.652546436 Trade 368.8443244.532398732 Hotels & Restaurants 477.8051345.656190743 Private Services 234.7435139.510444307 Public Services 451.3222327.0642156321 Transport (U+R) 135.716798.360652275 Total Urban (mill. Euros) 2197.0651410.47557398

19 Key Economic Indicators Rural Sectors Output value RankTotal Value Added RankEmploy- ment Rank Agriculture 30.239128.53318551 Food Processing 8.55543.14951465 Other Manufacturing 1.94581.2027667 Construction 5.34851.0438298 Trade 25.971210.93432622 Hotels & Restaurants 22.825312.39622533 Other Private Services 3.53272.88461436 Public Services 4.72963.99542034 Total Rural (mill. Euros) 103.14564.1351957

20 Key Economic Indicators Supply of Commodities Domestic Production Public Services, Restaurants and Catering, Accommodation, R-Trade Imports Other Food and Drinks and Other Manufacturing Demand of Commodities Intermediate Use (rural) Trade (R&W), Other Food and Drinks Intermediate Use (urban) Other Food and Drinks, Other Private Services, Banking and Finance Final Domestic Cons. Public Services, R-Trade, Construction Exports Restaurants & Catering, Accommodation

21 Characteristics of the Case Study Area SAMs CZECH REPUBLIC: DISTRICT BRUNTAL Activities Spatial Distinction Rural Area (Bruntal) Agriculture, forestry Manufacture of basic metals and fabricated metal products Other Manufacturing Construction Wholesale and retail trade Tourism Other Services (public and private) Urban Area (Ostrava) Manufacture of machinery and equipment Other Manufacturing Construction Wholesale and retail trade Other Services (public and private) Transport (combined rural and urban)

22 Characteristics of the Case Study Area SAMs Commodities Non-spatial distinction Agricultural products and forestry Food products and beverages Textile and textile products Wood and wood products except furniture Chemical products Basic metals and fabricated metal products Machinery and equipment Electrical energy production Other manufacturing Construction work Wholesale trade Retail trade Hotels and restaurants Other Services (public and private) Transport

23 Characteristics of the Case Study Area SAMs Factors of Production Spatial distinction Unskilled Labour-Rural Skilled Labour -Rural Unskilled Labour-Urban Skilled Labour -Urban Capital Land Agricultural Land Housing-Rural Land Housing-Urban

24 Characteristics of the Case Study Area SAMs Households are defined by: Rural vs. Urban Commuter or other Agricultural (in rural area only) Tourists No Rest-of-World households were defined thus 6 household accounts are defined as follows: Rural Commuter – Rural Other, Urban Commuter – Urban Other Rural Agricultural Representative Tourist

25 Characteristics of the Case Study Area SAMs Direct Taxes: on firms and on households Indirect Activity Taxes: on firms, including community taxes and other indirect taxes on firms, e.g. excise duties, petrol taxes. Also subsidies as negative indirect activity tax Import Tariffs: the proportion of import duties to total output on the regional level Government: local governments (urban and rural) were not distinguished from central government Rest of the World Savings/Investments

26 Key Economic Indicators Economic Indicators Values (million CZK) Rural Area (Bruntal) Urban Area (Ostrava) Total Study Area Czech Republic GRDP 14677,4552070,3466747,792464400 Per capita GRDP 0,14050,16580,15950,2416

27 Urban Sectors Output Value (mill. CZK) RankTotal Value Added (mill. CZK) RankEmploy- ment Rank Machinery8799650465142825 Other Manufacturing531681108362295632 Construction11376523106133056 Trade20999359173202613 Private and Public Services484662221031570041 Transport15689458474145494 Total Urban15849552059148964 Key Economic Indicators

28 Rural sectors Output Value (mill. CZK) RankTotal Value Added (mill. CZK) RankEmploy- ment Rank Agriculture21946781635045 Basic Metal374851158432936 Other Manufacturing15070139602142042 Construction41293868548453 Trade386541197345864 Tourism9457308718857 Private and Public Services9962251811144661 Total Rural399141345446783

29 Key Economic Indicators Supply of Commodities Domestic Production Private and Public Services, Metal Products Imports Metal Products, Other Manufacturing Demand of Commodities Intermediate Use (urban) Private and Public Services, Other Manufacturing Intermediate Use (rural) Private and Public Services, Metal Products Final Domestic Cons. Private and Public Services, Other Manufacturing Exports Metal Products, Other Manufacturing

30 Calibration and Elasticities Calibration: the values of the normalizing (free parameters) are determinate so as to replicate the observed flow values incorporated in the SAM assuming all the equations describing the equilibrium in the system (model) are met in the benchmark period. For modeling (i.e. simulation) purposes, behaviour of the economy under various shocks required the specification of elasticity coefficients which quantify how production, consumption, etc. adjust to altered economic conditions.

31 Calibration and Elasticities Commodity Elasticities Armington: the elasticity of substitution between imports and domestic output in domestic demand. CET: the elasticity of transformation for domestic marketed output between exports and domestic supplies Archanes – Heraklion: different elasticities for each commodity 0.6 up to 1.2 (Armington) and CET twice the Armington District Bruntal : 2.0 for all commodities (Armington) and CET 1.6 for all commodities

32 Calibration and Elasticities Production Elasticities between factors: bottom of technology nest between aggr. factors and intermediate inputs: top of technology nest commodity output aggregation elasticity Archanes – Heraklion: Bottom technology nest: 0.5-1.2 Top technology nest: 0.6 Commodity elasticity: 6 (IFPRI default) District Bruntal: Bottom technology nest: 0.93 Top technology nest: 0.73 Commodity elasticity: 1.3

33 Calibration and Elasticities Household Consumption Elasticities Archanes – Heraklion: Frisch parameter: -1 Expenditure elasticity for market demand: agricultural products 0.4-0.5, wine 0.6, other food and drinks 0.7, the rest 1 Expenditure elasticity for home-consumption: 1 District Bruntal: Frisch parameter: -1 Expenditure elasticity for market demand: 1 Expenditure elasticity for home-consumption: 1

34 Closure Rules Model Closure Rules reflect assumptions on how markets operate Archanes – Heraklion: Labour market: fixed quantity supplied and flexible economy-wide wages neoclassical closure rule Capital: immobile for agriculture but mobile for rest sectors Government: flexible government savings; fixed direct tax rates Rest of the World: flexible foreign savings; fixed real exchange rate Savings/Investment: Flexible capital formation; fixed MPS for all non government institutions

35 Closure Rules District Bruntal: Labour market: fixed economy-wide wages and flexible quantity supplied Keynesian closure rule Capital: immobile for agriculture but mobile for rest sectors Government: flexible government savings; fixed direct tax rates Rest of the World: flexible foreign savings; fixed real exchange rate Savings/Investment: fixed government savings; uniform direct tax rate point change for selected institutions

36 THANK YOU FOR YOUR ATTENTION!!!


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