The added value from adopting a CGE approach to analyse changes in environmental trade balances
AbstractThe application of multi-region environmental input-output (IO) analysis to the problem of accounting for emissions generation (and/or resource use) under different accounting principles has become increasingly common in the ecological and environmental economics literature in particular, with applications at the international and interregional subnational level. However, while environmental IO analysis is invaluable in accounting for pollution flows in the single time period that the accounts relate to, it is limited when the focus is on modelling the impacts of any marginal change in activity. This is because a conventional demand-driven IO model assumes an entirely passive supply-side in the economy (i.e. all supply is infinitely elastic) and is further restricted by the assumption of universal Leontief (fixed proportions) technology implied by the use of the A and multiplier matrices. Where analysis of marginal changes in activity is required, extension from an IO accounting framework to a more flexible interregional computable general equilibrium (CGE) approach, where behavioural relationships can be modelled in a more realistic and theory-consistent manner, is appropriate. Our argument is illustrated by comparing the results of introducing a positive demand stimulus in the UK economy using IO and CGE interregional models of Scotland and the rest of the UK. In the case of the latter, we demonstrate how more theory consistent modelling of both demand and supply side behaviour at the regional and national levels effect model results, including the impact on the interregional CO2 ‘trade balance’.
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2009-13.
Date of creation: 2009
Date of revision:
CGE modelling; MRIO; CO2 trade balance; environmental responsibility;
Other versions of this item:
- Michelle Gilmartin & Peter McGregor & Kim Swales & Karen Turner, 2009. "The added value from adopting a CGE approach to analyse changes in environmental trade balances," Working Papers 0903, University of Strathclyde Business School, Department of Economics.
- D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
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