Demonstration Workshop Brussels, 26.11.2008

Demonstration of capabilities of a bi-regional CGE model to assess impacts of rural development policies (RURMOD-E)

Demonstration WorkshopBrussels, 26.11.2008

SENSITIVITY ANALYSIS-

ROBUSTNESS

Eudokia Balamou

Department of Economics

University of Patras

Two important issues in CGE models:

1. How the equilibrium relationships are obtained (elasticities) quantify how production, consumption, etc. adjust to altered economic conditions

2. How the model is closed (closure rules) reflect assumptions on how markets operate

However choice of elasticities and closure rules have no effect on the calibration of the models have a considerable effect on simulation results

Introduction

Sensitivity analysis is needed to test for the robustness of the findings

Question to be answered: Are results affected by small or large amounts? Does the distribution of effects change?

• in terms of direction of impacts

• in terms of distribution of effects across rural-urban space

Introduction

Sensitivity Analysis: Change of labour markets

Archanes-Heraklion Keynesian labor market

District Bruntal Neoclassical labor market Double the level of Armington elasticities

Presentation of results for 2 scenarios: Soft modulation RDM-AGRI (Axes 1, 2)ultural Centered RD

Measures

Sensitivity Analysis

Archanes - Heraklion GDP at factor Cost

Results of Sensitivity Analysis-Labor Closure

SOFTMOD SOFTMOD(S)RDM-AGRI (Axes 1, 2)

RDM-AGRI (Axes 1, 2)(S)

Rural 3.92 3.65 -1,08 -1,29

Primary -1.48 -1.28 -0,83 -1,03

Secondary 1.87 1.43 -6,71 -7,03

Tertiary 9.20 8.89 -0,35 -0,54

Urban -0.01 -0.60 0,05 -0,55

Primary -8.96 -9.93 -8,26 -9,20

Secondary -6.60 -7.81 0,83 -0,53

Tertiary 1.50 1.02 0,28 -0,17

Total 0.16 -0.42 0,00 -0,58

Archanes – Heraklion: Domestic Production

SOFTMOD SOFTMOD (S)RDM-AGRI (Axes 1, 2)

RDM-AGRI (Axes 1, 2) (S)

Primary -6.35 -6.98 -6,11 -6,74

Secondary -6.15 -7.30 0,09 -1,18

Tertiary 1.79 1.29 0,27 -0,20

Total -0.10 -0.74 0.10 0.54

Archanes – Heraklion: Producer Prices



Primary 5.73 5.75 8,47 8,44

Secondary 0.58 0.62 1,26 1,29

Tertiary -9.77 -9.85 -8,88 -8,96


Archanes – Heraklion: Factor Income



F-Uns. Labor -0.95 -1.59 -1,23 -1,86

F-Sk. Labor 0.44 -0.12 0,06 -0,49

F-Capital 0.38 -0.14 0,02 -0,49

F-RAgr.Land -9.51 -9.91 -8,90 -9,30

F-RLandH 2.00 1.49 3,99 3,53

F-ULandH 0.54 -0.03 0,05 -0,50

F-AGCAP -19.96 -20.84 -17,86 -18,76

F-AGRENTS -18.70 -19.49 -16,45 -17,27


What did the sensitivity analysis on closure rules show?

1. In some cases there is a change of sign from + to –

• GDP urban sectors from RDM-AGRI (Axes 1, 2) scenario

• Domestic Production secondary-tertiary prod. (only RDM-AGRI (Axes 1, 2))

• Factor Income Skill Labor and Capital from

both scenarios

2. No significant changes in terms of the magnitude of effects


District Bruntal GDP at factor Cost



Rural 0.03 0.00 1.78 0.14

Primary -0.07 -0.01 1.82 0.13

Secondary -0.02 -0.05 2.76 0.85

Tertiary 0.07 0.04 1.05 -0.38

Urban 0.03 0.00 1.10 -0.07

Secondary -0.02 -0.06 1.41 -0.06

Tertiary 0.06 0.03 0.93 -0.08

Total 0.03 0.00 1.25 -0.03


District Bruntal: Domestic Production



Primary -26.83 -24.70 -25,44 -24.54

Secondary -1.38 0.31 0,61 0.65

Tertiary -0.31 0.52 0,86 0.51

Total -1.08 0.11 0,38 0.23

District Bruntal: Producer Prices



Primary 20.59 19.74 11.53 10.54

Secondary 0.19 -0.11 0.27 0.17

Tertiary -1.19 -0.66 0.65 0.67


District Bruntal: Factor Income



F-R.Uns. Labor -4.78 -5.24 -2,09 -3,42

F-R.Sk. Labor -2.60 -2.89 -0,23 -1,35

F-U.Uns. Labor -0.90 0.34 0,79 0,82

F-U.Sk. Labor -0.86 0.36 0,86 0,90

F-Capital -1.23 -0.10 0,67 0,54

F-R.Agr.Land -4.81 -3.52 0,82 0,22

F-RLandH -1.11 -0.90 1,11 0,34

F-ULandH -1.71 0.27 1,24 1,42

F-AGCAP -43.74 -42.68 -41,39 -41,41

F-AGRENTS -43.74 -42.68 -41,39 -41,41


What did the sensitivity analysis on closure rules show?

1. No changes in sign in the case of the GDP

2. Changes in sign in the case of the SOFTMOD in domestic production and in Urban Unskilled and Skilled Labor and Urban Land Housing.



Archanes - Heraklion GDP at factor Cost

Results of Sensitivity Analysis-Elasticities



Rural 3.92 2.70 -1,08 -1,99

Primary -1.48 -1.68 -0,83 0,14

Secondary 1.87 0.17 -6,71 -24,06

Tertiary 9.20 7.12 -0,35 -0,14

Urban -0.01 0.04 0,05 0,11

Primary -8.96 -9.81 -8,26 -7,92

Secondary -6.60 -6.10 0,83 0,17

Tertiary 1.50 1.51 0,28 0,46

Total 0.16 0.16 0,00 0,02

Archanes – Heraklion: Domestic Production



Primary -6.35 -7.32 -6.11 -5,01

Secondary -6.15 -5.86 0.09 -0,99

Tertiary 1.79 1.76 0.27 0,43

Total -0.10 -0.08 0.10 0.01

Archanes – Heraklion: Producer Prices



Primary 5.73 4.19 8,47 15,23

Secondary 0.58 0.49 1,26 1,24

Tertiary -9.77 -9.59 -8,88 -9,50


Archanes – Heraklion: Factor Income



F-Uns. Labor -0.95 -0.96 -1,23 -1,73

F-Sk. Labor 0.44 0.54 0,06 -0,36

F-Capital 0.38 0.47 0,02 -0,42

F-R.Agr. Land -9.51 -10.65 -8,90 -9,58

F-RLandH 2.00 1.29 3,99 0,59

F-ULandH 0.54 0.65 0,05 -0,45

F-AGCAP -19.96 -21.65 -17,86 -16,44

F-AGRENTS -18.70 -20.33 -16,45 -14,68


What did the sensitivity analysis on elasticities?

1. In some cases there is a change of sign but this are very limited (only in GDP and factor income)



District Bruntal GDP at factor Cost




Rural 0.03 0.02 1.78 1.52

Primary -0.07 -0.05 1.82 4.66

Secondary -0.02 -0.01 2.76 2.35

Tertiary 0.07 0.05 1.05 0.72

0.85Urban 0.03 0.02 1.10 0.85

Secondary -0.02 -0.01 1.41 1.31

Tertiary 0.06 0.04 0.93 0.60

Total 0.03 0.02 1.25 0.99

District Bruntal: Domestic Production



Primary -26.83 -31.00 -25,44 -28,23

Secondary -1.38 -1.50 0,61 0,28

Tertiary -0.31 -0.01 0,86 0,80

Total -1.08 -1.02 0,38 0,18

District Bruntal: Producer Prices




Primary 20.59 13.40 11.53 8.73

Secondary 0.19 0.17 0.27 0.23

Tertiary -1.19 -0.99 0.65 0.64

District Bruntal: Factor Income




F-R.Uns. Labor -4.78 -5.06 -2,09 -2,69

F-R.Sk. Labor -2.60 -2.57 -0,23 -0,61

F-U.Uns. Labor -0.90 -0.74 0,79 0,59

F-U.Sk. Labor -0.86 -0.66 0,86 0,68

F-Capital -1.23 -1.06 0,67 0,42

F-R.Agr.Land -4.81 -4.47 0,82 1,37

F-RLandH -1.11 -0.83 1,11 0,92

F-ULandH -1.71 -1.60 1,24 1,01

F-AGCAP -43.74 -49.39 -41,39 -45,23

F-AGRENTS -43.74 -49.39 -41,39 -45,23

What did the sensitivity analysis on elasticities?

1. No significant changes in terms of sign



Sensitivity analysis was carried out to test for the robustness of the findings Policy simulations were repeated assuming

• different labor market closure rules

(Keynesian vs. Neoclassical)

• double the levels of Armington elasticities Both models are a little bit sensitive in term of change in labor market closure rule especially for GDP and factor income.

Conclusions

Both models not sensitive to changes in elasticities: the results were affected but by small amounts and there were no qualitative changes in terms of direction of impacts or distribution of effects across rural-urban space. Need to be very careful when it comes to the choice of closure rules and elasticitiesClosure rules must be suitable for the study region in order to reflex the “correct” results

Conclusions

THANK YOU FOR YOUR ATTENTION!!!

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Demonstration Workshop Brussels, 26.11.2008

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