Modeling the water-food-energy nexus in the arab world: Economic and welfare impacts in Egypt
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Presentation by IFPRI's Perrihan Al-Riffai
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Modeling the water-food-energy nexus in the arab world: Economic and welfare impacts in Egypt
- 1. Modeling the Water-Food-Energy Nexus in the Arab World : The Case of Egypt ECONOMIC AND WELFARE IMPACTS: A SINGLE COUNTRY DYNAMIC COMPUTABL E GENERAL EQUILIBRIUM (DCGE) MODEL PERRIHAN AL-RIFFAI IFPRI APRIL 18, 2016 CONRAD - CAIRO, EGYPT
- 2. DCGE Model for the Water-Energy-Food Nexus Source: Author’s adaptation of Hoff (2011) and von Braun (2015)
- 3. DCGE Model for the Water-Energy-Food Nexus Source: Author’s adaptation of Hoff (2011) and von Braun (2015)
- 4. DCGE Model: Circular Flow of Income Production Payments Taxes Remittances Foreign markets and countries Public sector or government Trade AidRecurrent spending Public investment Foreign investment Savings & private investment Industry Sectoral & national economic growth Household incomes & poverty Agriculture Services Rural Urban Incomes Consumption Productivity/technology Human/physical capital Taxes & social grants Taxes Product markets Factor markets
- 5. DCGE Model: Circular Flow of Income Impact of a negativeclimatechange shockor reducedwater availabilityon the economycaptured throughnegativelong term cropyield changes Production Payments Taxes Remittances Foreign markets and countries Public sector or government Trade AidRecurrent spending Public investment Foreign investment Savings & private investment Industry Agriculture Services Rural Urban Incomes Consumption Productivity/technology Human/physical capital Taxes & social grants Taxes Product markets (water) Factor markets (water)
- 6. DCGE Model: Circular Flow of Income Supply of food is impactedin the economy Production Payments Taxes Remittances Foreign markets and countries Public sector or government Trade AidRecurrent spending Public investment Foreign investment Savings & private investment Industry Agriculture Services Rural Urban Incomes Consumption Productivity/technology Human/physical capital Taxes & social grants Taxes Product markets (water) Factor markets (water)
- 7. DCGE Model: Circular Flow of Income Throughthefactorandtheproductmarkets,households(especiallyruralhouseholds)areimpactedthemost Production Payments Taxes Remittances Foreign markets and countries Public sector or government Trade AidRecurrent spending Public investment Foreign investment Savings & private investment Industry Agriculture Services Rural Urban Incomes Consumption Productivity/technology Human/physical capital Taxes & social grants Taxes Product markets (water) Factor markets (water)
- 8. DCGE Model: Circular Flow of Income Throughthefactorandtheproductmarkets,allhouseholdsareaffected Production Payments Taxes Remittances Foreign markets and countries Public sector or government Trade AidRecurrent spending Public investment Foreign investment Savings & private investment Industry Agriculture Services Rural Urban Incomes Consumption Productivity/technology Human/physical capital Taxes & social grants Taxes Product markets (water) Factor markets (water)
- 9. DCGE Model: Circular Flow of Income As a resultofadversewelfareimpacts,thegovernmentmaydecidetointroducewelfareenhancingmeasures, eg,increasesocialgrantsand transferstothevulnerable Production Payments Taxes Remittances Foreign markets and countries Public sector or government Trade AidRecurrent spending Public investment Foreign investment Savings & private investment Industry Agriculture Services Rural Urban Incomes Consumption Productivity/technology Human/physical capital Taxes & social grants Taxes Product markets (water) Factor markets (water)
- 10. • The CGE model produces results relative to the baseline selected – helpful for comparison • Macro-indicators (or regional): GDP, employment, fiscal accounts, investment, trade, etc…. • Sectoral indicators: GDP/Value added, resources allocation, crop production, investment decisions • Welfare indicators: poverty, income, household spending, inequality DCGE Model Results
- 11. Strengths • Based on a general equilibrium (macro) economic principle that integrates micro economic theory: Producers and households maximize profits and utility (respectively) and produce the necessary behavioral equations (demand and supply) that govern the behavior of the agents in the model. • Ability to give welfare impacts: Shows the direct as well as the indirect impacts of an exogenous shock on the whole economy and on poverty and inequality • Ex-ante policy information: Gives the direction of a policy change/scenario before the policy as information to policy makers • Allows hybrid modeling: CGE models can link with other partial equilibrium models (climate, water, and crop models) in order to optimize the benefits of using the different types of models together in a coherent and comprehensive framework.
- 12. Weaknesses • In most cases elasticities are not computed for the country: Oftentimes and especially for developing countries, elasticities are borrowed from the literature from countries with similar profiles for use with the model if none exist for the country under study • Black box: Oftentimes CGE models are seen as black boxes by other researchers • CGE model results emphasize the direction of change rather than the magnitude of the change: CGE models are not forecast models and so the impact of policy changes over a time horizon are best seen as information on the impact of policy changes rather than on the level ( or ) changes.
- 13. Policy Application: 3 Country Case Study (Syria, Tunisia and Yemen) • What are the impacts of climate change on agricultural production, especially crop yields? • What are the impacts of climate change on agricultural growth, overall GDP growth? • What is the impact of climate change on (rural) incomes at the national and sub national levels (AEZs)? • What are potential policy and investment options to mitigate growth and poverty effects of climate change?
- 14. Results: Households & Welfare Syria Yemen Global CC Syria Yemen Local CC Combined CC Syria Yemen
- 15. • Climate change: Temperature increases and available rainfall (where relevant) from downscaled GCMs • Water supply and allocation: Water availability for all sectors in the economy • Crop yields: The impact on crop yields of climate risk and water availability scenarios Ways Forward: Data Needs for the DCGE Model
- 16. THANK YOU