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GTAP Resources: Frequently Asked Question Details

Subject: RORG


I try to impose a shock on rorg or globalcgds, but they are not in the default exogenous variable list. I checked equation RORGLOBAL, rorg should be exogenous when RORDELTA=1 or globalcgds is exogenous when RORDELTA=0. But they are both endogenous in the default closure. How can I exogenize rorg or globalcgds?

I understand that total investment is constrained by total savings, but I could not find such an equation in GTAP tablo. The equation WALRAS would impose such constraint, but when ‘walraslack’ is endogenized in the default closure, this constraint breaks down. Could please tell me which equation shows the constraint of savings over investment so the ‘walraslack’ will be zero (when it is endogenized)?

Answer: 1) You cannot increase global investment without increasing global savings (unless you want to break walras law, which I won't answer here). You can increase some countries investment but then other countries' investment will have to fall so that global savings remains equal to global investment. So if you want to increase global investment then you need is to increase the savings of one or more regions, thereby increasing global saving and hence allowing global investment to increase.

You then decide how you want this global increase allocated across regions:

RORDELTA = 1, would then allocate that increased global savings according to rates of return. In this one rorg is determined endogenously as the rate at which global savings equals global investment. It would be driven down as the increased global savings tries to find new investment opportunities.

RORDELTA=0 allocates the increase proportionately across all countries. In this case this proportion is determined by global saving and hence global saving equals global investment is maintained. The rorg is then just endogenously determined as the weighted average of the rates of return afterwards.

2) If income equals expenditure in each region and all markets are in equilibrium, then the last one is in equilibrium automatically. This is walras law. You don't need the equation. Walraslack should equal zero automatically and this works as a test on the model.

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Date Added: 11/2/2011