nep-cmp New Economics Papers
on Computational Economics
Issue of 2007‒04‒14
five papers chosen by
Stan Miles
Thompson Rivers University

  1. Poverty-reducing or Poverty-inducing? A CGE-based Analysis of Foreign Capital Inflows in Pakistan By Rizwana Siddiqui; A. R. Kemal
  2. Remittances, Trade Liberalisation, and Poverty in Pakistan: The Role of Excluded Variables in Poverty Change Analysis By Rizwana Siddiqui; A. R. Kemal
  3. Free Trade between the EU and Russia - Sectoral Effects and Impacts on Northwest Russia By Ville Kaitila
  4. Assessing the Economic Impact of Minimum Wage Increases on the Washington Economy: A General Equilibrium Approach By David Holland; Sanjoy Bhattacharjee; Leroy Stodick
  5. Analysing welfare reform in a microsimulation-AGE model : the value of disaggregation By Arntz, Melanie; Boeters, Stefan; Gürtzgen, Nicole; Schubert, Stefanie

  1. By: Rizwana Siddiqui (Pakistan Institute of Development Economics, Islamabad); A. R. Kemal (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Foreign capital inflows (FKI) help an economy by financing the imbalance between income and expenditure. However, their impact on poverty in the recipient economy is a controversial issue. In this study, we examine the impact on poverty in two different scenarios (1) labour is homogeneous (2) labour is heterogeneous. The Computable General Equilibrium model for Pakistan is used to conduct simulations in order to assess the impact of an increase in foreign capital on poverty both in the presence and in the absence of trade liberalisation. Several interesting results emerge from the study. First, FKI tends to reduce poverty in the presence as well as in the absence of trade liberalisation when labour is homogeneous. However, poverty reduction appears to be larger in the presence of trade liberalisation. Second, when labour is differentiated according to qualification and is assumed to be sector-specific, in the absence of trade liberalisation a higher proportion of benefits of FKI accrue to skilled labour and poverty increases by all measures for both urban and rural households. In the presence of trade liberalisation, FKI benefits unskilled labour more, and poverty is decreased irrespective of the choice of poverty indicators
    Keywords: Capital inflow, Poverty, Pakistan
    JEL: F F3 F32
    Date: 2006
  2. By: Rizwana Siddiqui (Pakistan Institute of Development Economics, Islamabad); A. R. Kemal (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This study attempts to assess the impact of two shocks-trade liberlisation and a decline in remittances from abroad-on poverty in Pakistan using a CGE framework. It is found that tariff reducation in the absesnce of a decline in remittances reduces poverty, as measured by the head count, poverty gap, and severity ratios (FGT indicators) in both the rural and urban areas of Pakistan. In terms of welfare, all households appear to gain. The results show that the gain in welfare is larger for urban households than for rural households. We conclude from this that trade liberalisation reduces the gap between urban and ruralhouseholds. In a second set of experiments, it was found that trade liberlisation in the presence of a decline in remittances reduced welfare in urban households but rural households still show an increase over the base year. According to all FGT indicators, poverty increases in urban households but not in rural households. the combined shock is more harmful to households in the urban areas than for households in the rural areas. However, this welfare gain and reduction in poverty level in rural households in less than the welfare gain and poverty reduction in the presence of trade liberlisation only. Aggregate statistics show that the negative impact of remittance decline dominates the positive impact of trade liberlisation in urban areas. On the other hand, in the case of rural areas, the posve impact of trade liberlisation dominates the negative impact of a decline in remittances. It shows that teh decline in remittance inflows is a major contributory factor in explaining the increase in poverty in pakistan.
    Keywords: Trade, Remittances, Poverty, Pakistan
    JEL: F10 F16 I32 J61
    Date: 2006
  3. By: Ville Kaitila
    Abstract: We analyse the implications of free trade between the EU25 and Russia using GTAP, a computable general equilibrium model. We review the sectoral effects by countries and make a tentative assessment of the impact on the regions in Northwest Russia. Free trade on its own would have a negative terms-of-trade effect in Russia and cause a small decline in welfare. If coupled with an increase in productivity, welfare would increase. This emphasises the importance of reforms in the Russian economy. The quantity of production in Russia in ferrous and non-ferrous metallurgy, machine building and metal working, and wood and paper are the principal declining sectors with free trade. Production in capital goods, fuel industry, and services increases. Thus there are some symptoms of Dutch disease. Due to its production structure the northwest would seem to benefit slightly less than Russia on average in terms of the volume of gross regional product. In this respect there are differences between the regions of northwest Russia.
    Keywords: EU, Russia, free trade, integration
    JEL: F15 F17
    Date: 2007–04–10
  4. By: David Holland; Sanjoy Bhattacharjee; Leroy Stodick (School of Economic Sciences, Washington State University)
    Abstract: Washington voters passed Initiative Measure No. 688 on November 3, 1998. This bill increased Washington’s minimum wage to $5.70 on January 1, 1999.and to $6.50 on January 1, 2000. The Initiative required that future annual changes in Washington’s minimum wage be indexed to inflation in the BLS Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As of 2005, Washington had the highest minimum wage in the nation at $7.35 per hour. Eleven other states have minimum wages above the Federal minimum wage of $5.15 per hour; however, Oregon is the only other state with an inflation-indexed minimum wage, which was $7.05 per hour in 2004. A computable general equilibrium (CGE) model of the Washington economy was used to examine the economic impact of increases in Washington’s minimum wage. Results from the short-run model indicated that a five percent increase in Washington’s minimum wage would cause a loss of 1909 minimum wage jobs (2.5 percent of baseline minimum wage jobs) but the wage bill for minimum wage workers would increase by $22.61 million (2.38 percent of the baseline minimum wage bill). The loss in the total wage and capital bill for the state economy was $14.04 million. The predicted change in gross state product was roughly 0.007 percent. Tracing the impact of increases in the minimum wage across the size distribution of household income, low income households in Washington experienced an increase in welfare and there was a slight decrease in welfare for high income households.
    Keywords: Washington's minimum wage, the Washington CGE model, Two-level CES production functions, elasticity of labor-capital substitution, welfare change
    JEL: R13
    Date: 2006–09
  5. By: Arntz, Melanie; Boeters, Stefan; Gürtzgen, Nicole; Schubert, Stefanie
    Abstract: We present a combined, consistent microsimulation-AGE model that uses the labour market model PACE-L, data from the German Socio-Economic Panel and a discrete choice labour supply estimation. The model is used to analyse a reform that cuts the social assistance minimum income and lowers the transfer withdrawal rate in order to encourage labour force participation at the lower end of the wage distribution. We compare a disaggregated and an aggregated version of the model as well as a partial and a general equilibrium variant. It turns out that both disaggregation and general equilibrium feedback tend to mitigate the labour supply response to the reform proposal. While some labour supply indicators react quite sensitively to the level of aggregation, most macroeconomic variables are considerably more robust.
    Keywords: applied general equilibrium, discrete working time choice, labour market, wage bargaining, labour market reform, logit model, microsimulation
    JEL: D58 J22 J51
    Date: 2006

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