GTAP Resources: Resource Display
| GTAP Resource #7542 |
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"Investment in CGE models: Alternatives to the standard GTAP closure" by van der Mensbrugghe, Dominique Abstract This paper looks at alternative investment specifications for the GTAP-RD model. In the standard model, aggregate investment is determined in period t-1, and is added to the depreciated capital stock of period t-1, which provides the beginning of period capital stock for period t. The latter is allocated across activities using a CET specification, typically assuming full mobility. The standard model also assumes a single cost structure for the single investment good, irrespective of the destination activity of investment. This paper looks at two alternatives for allocating investment as well as allowing for variegated investment costs depending on the destination activity of investment. The first alternative was developed by Dixon et al. 1982 for the ORANI model, and which is also implemented in a modified version of the GTAP model (Dixon et al. 2019). This specification is similar to the GTAP specification that allocates global savings across regions. It implements a rate-of-return schedule for each activity which is a function of the ratio of K(t+1)/K(t), which determines an ‘expected’ rate-of-return and the allocation rule specifies that the expected rate-of-return is equalized across activities. The current rate of return is similar to Tobin’s q, it is the profitability rate relative to the replacement cost of capital less the depreciation rate. The second specification is derived from the GEM-E3 model (Capros et al 2017). In this specification, investment is a share of the current capital stock and Tobin’s q. An important factor in the GEM-E3 model is the expected growth rate of the sector. The paper assesses the impacts of the specification choice with implementation in the standard GTAP model and an illustrative policy shock—introduction of a carbon price--and highlights the data needs and parameterization. |
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- Climate change policy - Dynamic modeling |
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Public Access  Paper (293.9 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 9/15/2023 2:05:45 PM
