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Economic modelling

The modelling work has employed computable general equilibrium (LEITAP) and partial equilibrium (ESIM, CAPRI) models. The intention has been to use the same suite of models as in the initial Scenar study.3 Although it is difficult to obtain fully consistent results from the different models, by harmonising scenarios and linking a selected number of model results and parameters, consistency between model results is improved (Table 7.1). The downscaling focuses on effects of different scenarios for specific regional issues not handled by a model directly.

Table 7.1. Schematic overview of the models: geographical and sectoral coverage

Agricultural

Rest of economy

Global

LEITAP

LEITAP

EU/national

ESIM

LEITAP

NUTS 2

CAPRI

Downscaling

To perform the analysis, a modelling framework has been constructed, consisting of three economic models (LEITAP, ESIM and CAPRI). In this modelling framework the long-term economic and environmental consequences of different scenarios are quantified and analysed, starting from 20074 up to 2020, for several regions in the world and all 27 European Union countries. The main contribution of LEITAP is in the WTO policies (affects all sectors, not only agriculture) and the interaction with the rest of the economy (other industries and factor markets). ESIM’s main contribution is the projection of developments in EU agricultural markets into the future. CAPRI’s main contribution is modelling changes in CAP policies and their regional impact (NUTS 2 level). The downscaling is based on regional sectoral employment shares and results from CAPRI and LEITAP are combined to analyse changes in total regional employment per scenario.

LEITAP is a global computable general equilibrium model that covers the whole economy including factor markets and is often used in WTO analyses (Francois et al., 2005) and CAP analyses (Meijl and Tongeren, 2002). More specifically, LEITAP is a modified version of the global general equilibrium Global Trade Analysis Project (GTAP) model. Agricultural policies are treated explicitly (e.g. production quotas, intervention prices, tariff rate quotas, (de)coupled payments). Information is used from the OECD’s Policy Evaluation Model (PEM) to improve the production structure (Hertel and Keening, 2006) and a new land allocation method, that takes into account the variation of substitutability between different types of land (Huang et al., 2004), as well as a new land supply curve are introduced (Meijl et al., 2006; Eickhout et al., 2009). Recently the model has been extended with biofuels (Banse et al., 2008) and rural development policies (Nowicki et al., 2009). The ESIM and CAPRI models are EU27 partial equilibrium models for the agricultural sector at country and NUTS 2 levels, respectively, with a strong focus on the CAP. The regional decomposition and the very detailed description of agricultural production in CAPRI enables the modelling of CAP policies in more detail compared with ESIM and LEITAP. Moreover, the CAPRI model also calculates environmental indicators and it has recently been extended by Pillar 2 policies (Nowicki et al., 2009). ESIM contains a detailed description of the biofuel markets.

Total agricultural land use is endogenous in the LEITAP model by the introduction of a land supply function based on detailed biophysical data. Total agricultural land use is given to the partial equilibrium models. Yields are determined by a trend and an endogenous part dependent on prices. In ESIM yields are determined by an exogenous trend and output prices, while in LEITAP they are determined by an exogenous trend and production factor prices. Substitution effects between production factors play an important part in the LEITAP model. The elasticities of substitution are based on the GTAP database and model.

From the above, it is clear that the different models are overlapping each other; but they are also complementary, with each model having its strengths and weaknesses. The approach is such that the different models analyse the same scenarios. Moreover modelling results are copied from one model to the other, e.g. productivity and efficiency changes related to human and physical capital are copied from LEITAP to CAPRI. This does, however, not guarantee that the model results are fully identical. Differences in model results occur due to differences in type of models, definitions and aggregations of variables, modelling of policies and underlying data (especially behavioural parameters and costs and revenue shares).

 
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