InputOutput Model and Computable General Equilibrium Model Saipin

Input-Output Model and Computable General Equilibrium Model Saipin Cintakulchai 16 Jan 2008 I-O Model and CGE Model 1

Data Theoretical Structure Solution Techniques The Models Vehicles for Practical Policy Analysis 16 Jan 2008 I-O Model and CGE Model 3

Simple Input-Output Model คำถาม : แตละอตสาหกรรมควรผลตสนคาจำนวนเทาใด จงเพยงพอกบความตองการรวมในระบบเศรษฐกจ Labor Households Industries Inputs Outputs : - shoes : - machine, leather, rubber, etc. Final goods : - shoes Product markets 16 Jan 2008 I-O Model and CGE Model 5

Simple Input - Output Table Unit: Baht Goods Industries Final Demand Total value of output 1 2 1 X 12 X 1 H X 1 2 X 21 X 22 X 2 H X 2 Labor L 1 L 2 Equilibrium : X 1 = C 1 Cost C 1 C 2 and X 2 = C 2 16 Jan 2008 I-O Model and CGE Model 7

Input - Output Model X 1 = X 11 + X 12 + X 1 H X 2 = X 21 + X 22 + X 2 H กำหนดให ดงนน --- (1) --- (2) aij = Xij / Cj ; i, j = 1, 2 Xij = aij Xj Xj X 1 = a 11 X 1 + a 12 X 2 + X 1 H --- (1 -a) X 2 = a 21 X 1 + a 22 X 2 + X 2 H --- (2 -a) 16 Jan 2008 I-O Model and CGE Model 8

จดรปสมการใหม จะได (1 - a 11 ) X 1 - a 12 X 2 = X 1 H ---(1 -b) - a 21 X 1 + (1 - a 22 ) X 2 = X 2 H ---(2 -b) หรอในรปของ a 11 a 12 A= a 21 a 22 คำตอบ 16 Jan 2008 matrix : (I - A) X = D X= X 1 X 2 D= X 1 H X 2 H : X = (I - A) -1 D I-O Model and CGE Model 9

Input-Output Table (Closed Economy) Goods Industries 1. . 1 2. . n Final Demand Total Outputs . n X 11 …. . X 1 n X 21 …. . X 2 n. . Xn 1 …. . Xnn primary inputs L 1 …. . Ln Costs C 1 …. . Cn 16 Jan 2008 Unit: Baht X 1 H X 2 H. . Xn. H X 1 G X 2 G. . Xn. G X 1 X 2. . Xn Equilibrium : Xi = Ci I-O Model and CGE Model 10

เขยนในรป เมอ matrix ไดวา aij = Xij / Xj ; i, j = 1, 2, … , n a 11 a 12 … a 1 n A= a 21 a 22 … a 2 n an 1 an 2 … ann คำตอบ 16 Jan 2008 : (I - A) X = D X= X 1 X 2. . . Xn X 1 H+X 1 G X 2 H+X 2 G. . D=. . Xn. H+Xn. G : X = (I - A) -1 D I-O Model and CGE Model 11

Input-Output Table (Open Economy) Goods D o m e s t i c I m p o r t s Industries Unit: Baht Final Demand Total Outputs 1 2. . n 1 X 11 X 21. . Xn 1 . . . n …. . X 1 n …. . X 2 n. . …. . Xnn HH X 1 H X 2 H. . Xn. H G X 1 G X 2 G. . Xn. G EX X 1 E X 2 E. . Xn. E X 1 X 2. . Xn 1 2. . n M 11 …. . M 1 n M 21 …. . M 2 n. . Mn 1 …. . Mnn M 1 H M 2 H. . Mn. H M 1 G M 2 G. . Mn. G 0 0. . 0 M 1 M 2. . Mn primary inputs L 1 …. . Ln Costs C 1 …. . Cn 16 Jan 2008 Equilibrium : Xi = Ci I-O Model and CGE Model 12

การประยกตใช แบบจำลองปจจยการผลตและผลผล ต จาก : X = (I - A) -1 D 1. Production Planning 2. Output Multiplier 3. Linkage Effect 16 Jan 2008 I-O Model and CGE Model 13

Computable General Equilibrium Model or CGE Model Overview Objective and Advantages of a CGE model How many types of CGE model are there? Structure of a CGE model Database for a CGE model Limitations of a CGE model 16 Jan 2008 I-O Model and CGE Model 15

Major objectives of a CGE model èEconomic Planning èPolicy Analysis 16 Jan 2008 I-O Model and CGE Model 16

Advantages of a CGE model n multisector planning model n resource allocation analysis n income distribution analysis n etc. 16 Jan 2008 I-O Model and CGE Model 17

A CGE Model incorporates market mechanisms presents variables in terms of price and quantity 16 Jan 2008 I-O Model and CGE Model 18

How many types of CGE model are there? Static Model n Dynamic Model n Single - Country Model è Multiple - Country Model è 16 Jan 2008 I-O Model and CGE Model 19

Structure of a CGE model n n Production Consumption Income Equilibrium conditions 16 Jan 2008 I-O Model and CGE Model 20

Flows of goods in a simple CGE model labour capital industries inputs exports Foreign market outputs Domestic market imports households 16 Jan 2008 government I-O Model and CGE Model 21

Example : a simple CGE model n closed economy n two sectors with perfect competition n two goods (X 1, X 2) and two factors (K, L) n one household 16 Jan 2008 I-O Model and CGE Model 22

Structure of a CGE model n n n Production Consumption Income Equilibrium § Market clearing conditions § Zero-profit conditions 16 Jan 2008 I-O Model and CGE Model 23

Production structure Domestic products Exports Industries Intermediate inputs Good 1 Domestic products 16 Jan 2008 Good 2 Primary inputs labour capital Imports I-O Model and CGE Model 24

Production Block Problem : Minimize costs of production Min Ci = P 1 X 1 i + P 2 X 2 i + WLi + RKi subject to production function Xi = Xi ( X 1 i, X 2 i, Li, Ki ) 16 Jan 2008 I-O Model and CGE Model 25

Solution : Demand for inputs X 1 i = f 1 i ( P 1, P 2, W, R, Xi) n X 2 i = f 2 i ( P 1, P 2, W, R, Xi) n Li = f. Li ( P 1, P 2, W, R, Xi) n Ki = f. Ki ( P 1, P 2, W, R, Xi) n 8 equations and 14 variables 16 Jan 2008 I-O Model and CGE Model 26

Household Demand Its Income Labour Income Capital Income Total Income Consumption 16 Jan 2008 Good 1 Good 2 Domestic products Imports I-O Model and CGE Model Savings Income Taxes 27

Consumption Block Problem : Maximize Utility Max U = U ( X 1 H, X 2 H ) subject to budget constraint M = P 1 X 1 H + P 2 X 2 H 16 Jan 2008 I-O Model and CGE Model 28

Solution : Demand for goods X 1 H = f 1 H ( P 1, P 2, M ) n X 2 H = f 2 H ( P 1, P 2, M ) n where M=WL+RK 3 equations and 5 variables (new) 16 Jan 2008 I-O Model and CGE Model 29

Profit Functions Zero - Profit Assumption TRi = TCi or Pi. Xi = P 1 X 1 i + P 2 X 2 i + WLi + RKi 16 Jan 2008 I-O Model and CGE Model 30

Solution : Price relationship Pi = P 1( X 1 i / Xi ) + P 2( X 2 i / Xi ) + w ( Li / Xi ) + r( Ki / Xi ) or Pi = a 1 i P 1 + a 2 i P 2 + a. Li W + a. Ki R 2 equations 16 Jan 2008 I-O Model and CGE Model 31

Market Clearing: Equilibrium Product markets : X i= X i 1 + X i 2 + X i. H Factor markets : L= L 1 + L 2 K= K 1 + K 2 4 equations 16 Jan 2008 I-O Model and CGE Model 32

Database for a CGE model n Input-Output Data n Socioeconomic Data n Behavioral Parameters n etc. 16 Jan 2008 I-O Model and CGE Model 33

Limitations of a CGE model M data: not up to date, inconsistency M difficult to know whether the model is correct M computation capacity 16 Jan 2008 I-O Model and CGE Model 34