WIOD in GEM-E3
E3M-Lab – ICCS
Paroussos Leonidas, Karkatsoulis Panagiotis,
Vrontisi Zoi, Capros Pantelis
Overview
 GEM-E3 in WIOD
 Description of the GEM-E3 model in
connection with the WIOD database and
comments on the WIOD data.
 Methods/sources for reconciliation of
additional data required
 Use of the GEM-E3-WIOD model
GEM-E3 versions
 GEM-E3 is a recursive dynamic CGE model that currently has two
versions:
 GEM-E3-EU: Covers all EU member states based on
EUROSTAT data.
 GEM-E3-World: Covers the whole world linked with
endogenous bilateral trade (based on GTAP data).
 New version: GEM-E3-WIOD (work in progress)
 Cover 40 regions and 35 sectors linked with bilateral trade
matrices (use the highest detail of the database available)
 Baseline projections up to 2050 with a 5 year time step
GEM-E3 Model Identity
 GEM-E3 is a computable general equilibrium model with
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multiple sectors and multiple regions
The model performs recursively dynamic simulations until
2030 and 2050
The model is suitable for impact assessment studies
concerning structural change policies
Conclusions are drawn by comparing scenarios
Special focus on interactions between the economy, the
energy system, the environment.
Written as MCP problem in GAMS (solved with the PATH
solver)
GEM-E3 Model Database
Input-Output Tables
Employment data
Transfers between sectors
Capital data by sector
Bilateral Trade Matrix
Emission statistics
Family Budget statistics
Investment Matrices
Data available from WIOD
Economic circuit of GEM-E3-WIOD
 The model computes the price vector that simultaneously clears the
product, capital and labor market.
Regional and sectoral coverage
 The regional detail (40 countries) of the WIOD database
is sufficient to cover the GEM-E3 model main regional
requirements.
 At the sectoral level the resolution provided by the database (35
industries) is detailed enough, apart from the representation of
the energy sector. The energy sector is quite aggregated. In the
current version of the database comprises of
 i) coke, refined petroleum and nuclear fuel and
 ii) electricity, gas and water supply.
 The minimum resolution required by the GEM-E3 model for
the energy sector is i) coal ,ii) crude oil, iii) refineries iv) gas v)
electricity supply.
Comments on regional and sectoral
coverage
 Both the regional and sectoral classification of the database
are adequate for modeling purposes. The following points
should be taken into account:
1.
2.
3.
For the world version of GEM-E3 the database needs to be
closed (by adding a RoW region)
For the EU27 version where RoW is exogenously defined the
WIOD database suffices
The energy sector is aggregated hence limiting the potential
of the model to be used for GHG mitigation policies.
Comments on WIOT (I)
 Handling of negative flows: For certain countries WIOT data
include negative flows as regards to exports. Proposed solutions i)
treat as imports (ZEW), ii) put them to zero and adjust
production (CPB), iii) add to change in stocks (as long as the value
is low),iv) aggregate.
 Negative flows registered in the operating surplus account
(compensation of capital) are consistent with the valuation
concepts since they represent losses of the particular industry for
the particular year.
 Although this is consistent in valuation terms it is not consistent
with the CGE model assumptions (i.e. that the structure of the
economy at the base year is at long run equilibrium). The ZEWs
approach in dynamic calibration may be adopted in order to
compute the “equilibrium” production functions.
Comments on WIOT (II)
 Taxes less subsidies on products: Decomposition into indirect taxes, VAT
and subsidies is desired (with an indication of the tax base for each
country).
 Value Added: In the WIOT data value added is reported aggregated (i.e.
the sum of compensation of capital and labor). Separate reporting for
labor and capital exists in the YL files and supply and use tables.
Inconsistency: Some of the value added reported in YL files does not
sum up to the value added of the WIOT
 The compensation of employees transaction could be further
disaggregated to its components, that is wages & salaries and
employers social security contributions.
 Tariffs and International trade margins: A tariff and trade margin table
following the bilateral flows is usefull. The implied tariff rates computed
from the WIOD database are found to be reasonable.
Firms behavior - production
1.........................................n
1.
...
...
...
...
...
n
Intermediate demand
flows expressed at
producer prices
(product assumption)
Value Added
Taxes
Total domestic supply
Imports
Total supply
Model change based on the detailed
WIOT trade data
(the decision will be modeled at the
final/intermediate demand level)
Bilateral trade
 The bilateral trade matrix in the WIOT covers the data
requirements of the model and provides additional information
that the model could utilize
 Improvement of the GEM-E3 model: The Armington assumption
at the aggregate level can be relaxed and the decision among
imported and domestically produced goods can be defined at the
agents level.
 Specific comments to WIOD database:
 In the TR files bilateral imports are not yet mirrored. The provision of
bilateral exports could be very useful in computing the bilateral
margins.
 Imports as registered in the TR files are not consistent either with
those in the supply and use tables SUT files or with the WIOT data.
Extention of composite good
representation
 For firms the decision for the imported good will now
take place at the level of intermediate input transaction
(pxd,pimp: prices of domestically produced goods and imports, s:
Armington elasticity, )
 Similar representation holds for household decision
Institutional transactions
Full Sequence of Accounts
Households
Firms
Government
RoW
Transfers Table (e.g. taxes on income)
H
F
G
R
H
F
G
R
217040
34590
0
110
2430
 The WIOD database covers all institutional sectors but it does not include the
institutional accounts that cover all the transactions between them.
 For EU27 member states ICCS has computed these transactions using the full
set of ESA95 tables for the full sequence of accounts of each institutional sector
from the EUROSTAT database.
Investment
 This construction of the investment matrix requires three sets of
information:
1.Gross fixed capital formation by product (already identified by WIOD)
2.Investment by firm (or time series of capital stock that can be used as
proxy)
3.Mapping table of 1 to 2
 Currently in WIOD includes only fixed capital formation. A RAS method
can be applied if 1 and 2 are available
Consumption
 Consumption matrices translate household consumption (as
defined in COICOP classification) to demand for consumption
products (see Figure 4). Currently in the WIOD database only the
demand for consumption products is identified.
 Consumption matrix available for UK
Labour market
 The coverage of the WIOD database regarding the labor
market is quite sufficient for the GEM-E3 model.
 Additional data requirements regarding the unemployment
rates were extracted from the ILO database.
 Wage rates per industry and country were found to be at
reasonable levels apart from very few cases.
Great Britain, Japan and Belgium present considerably higher
than the industry average hourly labor compensations.
2. This is mainly the case for the energy sector (coke, refined
petroleum and electricity), water and air transport, real estate
and for private households with employed persons.
1.
POL
GBR
Private Households with Employed Persons
jpn
JPN
Other Community, Social and Personal Services
BEL
Health and Social Work
jpn
Education
bel
Public Admin and Defence; Compulsory Social Security
Renting of M&Eq and Other Business Activities
BEL JPN
jpn
Real Estate Activities
JPN
Financial Intermediation
gbr
Post and Telecommunications
100
Other Supporting and Auxiliary Transport Activities
bel
BEL GBR
Air Transport
Water Transport
140
Inland Transport
Hotels and Restaurants
Retail Trade, Except of Motor Vehicles; Repair
gbr
GBR
Wholesale Trade and Commission Trade, Exc of Motor Vehicles
bel
Sale, Maintenance and Repair of Motor Vehicles
Construction
Electricity, Gas and Water Supply
80
Manufacturing, Nec; Recycling
Transport Equipment
Electrical and Optical Equipment
Machinery, Nec
Basic Metals and Fabricated Metal
Other Non-Metallic Mineral
Rubber and Plastics
Chemicals and Chemical Products
Coke, Refined Petroleum and Nuclear Fuel
120
Pulp, Paper, Paper , Printing and Publishing
Wood and Products of Wood and Cork
Leather, Leather and Footwear
Textiles and Textile Products
Food, Beverages and Tobacco
60
Mining and Quarrying
Agriculture, Hunting, Forestry and Fishing
Euro ¸per hour worked
Euro/working hour
160
gbr
GBR
pol
gbr
40
20
0
Application with the GEM-E3-WIOD
model: Carbon Leakage
 Definition: A domestic GHG mitigation action may result in
the increase of GHG emissions outside the country (carbon
leakage). This leakage is assumed to take the form of
industries re-location towards countries with no or mild
GHG mitigation rules (competitiveness loss due to
asymmetric climate policies) and the increase of fossil fuels
consumption (triggered by lower prices following the
slackened demand for fossil fuels, IPCC 2006).
Key modeling issues for carbon
leakage (I)
 Highly aggregated sectors and products homogeneity: Most of the
models used to asses the carbon leakage effects assume that each
industry produces a unique homogeneous product. This industry
aggregation may mask significant sub-sector differences (i.e. high
quality/R&D energy intensive products whose production cannot
be relocated due to infrastructure limitations of the hosting place
(i.e. lack of skilled labor) cannot be identified).
 WIOD contribution:
1. Labor skills distinction (high, medium, low)
2. Distinction of capital compensation according to 9 types of
capital.
3. High sectoral detail
Key modeling issues for carbon
leakage (II)
 Investment barriers: Risk premium on capital associated
with relocating businesses abroad is usually not taken into
account.
 Imperfect substitution between domestic and imported
products: In CGE models the Armington elasticities define
the degree of “competition” between domestic and imported
products and hence the potential for carbon leakage, but this
apply to the composite goods instead of industrial sectors.
 WIOD contribution:
1. Detailed bilateral trade on intermediate consumption and
final demand.
Thank you
GEM-E3 data requirements
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GEM-E3 is calibrated in a single year: selected year for current version 2006.
Final demand: household consumption (including consumption of NPISHs), government
consumption, gross fixed capital formation, change in inventories & valuables and exports.
Intermediate consumption
Government receipts/expenditures: intermediate taxes, value added type taxes, subsidies, duties,
indirect taxes, personal income taxes, employers social security contributions etc..
Bilateral trade matrices.
Investment matrices (i.e. matrices that translate investment by firm to demand for certain
investment products).
Consumption matrices (i.e. matrices that translate household consumption by product to
consumption by purpose).
Transfer payments among institutional sectors (households, firms, government and RoW)
Interest rates.
Inflation rates
Labor market data: active population, unemployment rate, unemployment benefits, hours worked
by sector.
Emissions: All GHG emissions (and their associated marginal abatement cost curves) and main
pollutants (NOX, SOX, NH3, NMVOC, CO, PM10).