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GTAP Resource #7301

"Quantity-based land allocation system: bringing realistic and consistent land allocation to the GTAP model"
by Ivanic, Maros, Jayson Beckman, Noe J Nava and Kristiina Ala-Kokko

Agricultural producers’ ability to change how land is allocated across different crops is crucial to cope with price and yield shocks. The widely used Global Trade Analysis Project (GTAP) accounts for land substitution through a Constant Elasticity of Transformation (CET) function of land with respect to land returns which is computationally easy to implement into the model but has an unappealing property that its functional form, in general, does not maintain the equality between the sum of allocated land and the total available quantity. In this work we test the CET assumption and find that the commonly used transformation elasticity of -1 does not hold globally. To improve land allocation behavior in the standard GTAP model, we develop, estimate, and implement a flexible land allocation framework–the Land Allocation System (LAS). LAS describes how land is reallocated when total available land changes and how producers respond to changing land returns by allowing for asymmetrical responses across crops. To demonstrate policy implications of the LAS, we simulate a projected population and gross domestic product (GDP) growth scenario through 2032, finding substantial differences between the predictions derived from the existing GTAP land allocation framework and those derived from LAS. The observed differences reflect the more accurate modeling of producers’ land use decisions by LAS than the CET. Unlike the standard GTAP model, LAS accounts for land constraints on producers who are unable to shift crop production to match the changing demand. Such inflexibility results in higher prices for fruits and vegetables and lower prices for wheat when growing incomes increase the demand for those crops. As an additional benefit, we note that the LAS functional form maintains that the sum of allocated lands equal total available land, allowing for this functional form to be used in the computable models dealing with land transformation.

Resource Details (Export Citation) GTAP Keywords
Category: 2024 Conference Paper
Status: Not published
By/In: Presented during the 27th Annual Conference on Global Economic Analysis (Fort Collins, Colorado, USA)
Date: 2024
Version: 1
Created: Ivanic, M. (4/15/2024)
Updated: Ivanic, M. (6/7/2024)
Visits: 150
- Land use
- Advances in quantitative methods

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