OTB: CGE Leverage Points and
Development First Modeling
Tara Caetano
Date: 7 November 2014
Leverage Points – Quantifying Uncertainty
Identifying the way that assumptions we make in the model affect the
results
First step to quantifying the uncertainties in long term CGE modeling
Main leverage points:
Three arms that determine GDP: TFP; investment share of savings; population
growth (labour supply)
Elasticities (substitution, trade, income, production)
World prices
Foreign savings
Others (government consumption adjustment factor, wage distortion factor,
direct tax scaling factor)
Development-First Baseline
Calibrating a baseline that is more inline with our development goals
Similar to the Brazilian reference case
Crude method of ensuring development first
All households above the poverty line by 2050
An increase in employment over the period (?)
Reduction in inequality
Introducing mitigation actions as scenarios
How do these impact our development-driven economy?
Can we achieve carbon reductions whilst maintaining development?
Employment, employment, employment
South Africa has an official unemployment rate of 24.7%
Youth unemployment between 40% and 50%
Focus on growth: belief that it will generate employment
Trends have shown that growth has led to carbon intensive, capital intensive
growth in South Africa – not driving employment
How do we generate demand for labour in SA?
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No silver bullet
Market rigidities are a barrier for employment
Education, training and skills development
Explore the methods for capturing employment in the CGE
Equilibrating assumptions are limiting (Employment Wages/adjusting TFPs)
Role of micro-simulations?
Linked Model Development
A number of technical aspects that need to be addressed:
Syncing emissions
Looking deeper into electricity price changes in the linked model
Assisting with the linking of other sectors in SATIM-e-SAGE
Furthering the work done on employment and inequality
Future Work
Developing the current linked model to better capture the labour market,
household behaviour and inequality
Micro-simulation?
Including different indicators to capture better standards of living
Including the informal sector
A comparative analysis of the impacts of mitigation actions on inequality
in Brazil and South Africa
Interesting case given the development synergies and the difference in
climate problems
Two country comparison can be taken forward to compare all MAPS countries