Introduction to MAMS – A CGE Model
for Developing Country Strategy Analysis
Hans Lofgren
DECPG, World Bank
Presentation for the LCSPE and DECPG training workshop
“CGE Modeling for Policy Analysis,” held at the World Bank,
Washington, D.C., May 28, 2013
Outline
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Introduction
Model Design
Model Structure
The MAMS Database
User-Friendly Interface
Applications: Policy Issues and Insights
Yemen Application
References
Introduction
• MAMS = Maquette for MDG Simulations
• Developed at the World Bank, initially for
country-level MDG strategies
– how should government and aid policies be
designed to achieve the MDGs (poverty,
education, health, water-sanitation)?
• Evolved into a more general framework for
country-level, ex-ante, medium-to-long-run
development policy analysis.
Introduction
• The main originality of MAMS is the inclusion of
(MDG- and/or education-related) human
development (HD) services and their impact on
MDGs and other aspects of social and economic
performance.
• In addition:
– endogenous links between education and the labor
market.
– disaggregation of the government spending by
function into current and investment; coverage of
government capital stocks
– HD services may be produced by the government and
the private sector.
Introduction
• As of May 2013, MAMS applications to around
50 countries – www.worldbank.org/mams
• Two main settings:
– World Bank country analysis (including Country
Economic Memoranda, Public Expenditure
Reviews, Poverty Assessments);
– UN projects (UN-DESA + UNDP + World Bank +
developing country researchers).
Model Design
• Strict separation between
– GAMS: generic model code
– Excel: application-specific files that contain the
database (general; MDG) and the specification of
simulations
• A user-friendly interface, ISIM-MAMS, has been
developed.
• GAMS code covers everything that is common
across applications.
• Each database controls the model disaggregation,
selection of version (core or extended to all or
part of modules of MDG versions), the time
frame for simulations, and selected assumptions.
Model Structure
• Open-economy recursive-dynamic real model
in the World Bank/Robinson tradition.
• Core module + MDG module (in full or only
selected parts) and/or poverty module.
• MAMS may be solved in “multi-pass” mode
(year by year) or in “single-pass” mode
(simultaneously for all periods; often faster
but less robust).
• MCP (Mixed-Complementary Program) solver.
Structure of MAMS
• The following figure summarizes the payment
flows that are captured by MAMS in any year.
• Main building blocks:
– Activities (producers)
– Institutions: Households, Government, Rest of
World
– Markets: factors, domestic commodities
• Most blocks are typically more disaggregated.
Activities
• Sell their output at home or abroad.
• Use their revenues to cover their costs.
• Produce to maximize profits 
– Factor hiring and other input use depend on
wages, input prices, output prices
– Output shares exported and sold domestically
depend on the relative prices of output in world
and domestic markets.
Activities
• Each activity produces a “commodity” (good
or service).
• Additional commodities are non-competitive
imports (i.e. without domestic production).
Households
• Earn incomes from (a) factors; (b) transfers
and interest from loans to the government
(with the interest due to loans from the
households to the government); and (c)
transfers from the rest of the world net of
interest on household foreign debt (tracked
by model).
• Use incomes for direct taxes, savings, and
consumption.
Households
• Savings shares depend on per-capita incomes.
• Consumption decisions change in response to
income and price changes.
• By construction (and as required by their
budget constraints), the consumption value of
the households equals their income net of
direct taxes and savings.
Government
• The government
– gets its receipts from taxes, domestic and foreign
transfers, and foreign borrowing.
– uses these for services (=government
consumption), investments (providing the capital
stocks required to produce these services),
transfers to households, and interest payments.
• The model tracks of government domestic
and foreign debt stocks (including foreign
debt relief).
Government
• Each receipt and spending item follows some
rule (with plenty of options – exogenous
values, share of GDP or absorption, rates …)
• Government follows a “closure rule”,
indicating how it remains within its budget
constraint (adjusting one or more items on
the spending or receipt side).
The rest of the world (RoW)
• Is represented in the balance of payments.
• Provides foreign currency in the context of
transfers to government, and households (net
of interest payments on foreign debts), FDI,
net loans, and exports.
• Receives foreign currency in exchange for
imports.
• Imports take place at exogenous world prices.
• For exports, the alternative of an export
demand function is available.
The rest of the world
• Export and import decisions are made by
domestic producers and demanders, resp.
• Non-trade payments follow specified rules
(with different options).
• The “budget” of the RoW (the balance of
payments) follows a “closure rule”:
adjustments in the real exchange rate
equalize inflows and outflows of foreign
currency (by influencing exports and imports).
Private investment financing
• It is provided from domestic private savings
(net of lending to the government) and
foreign direct investment (FDI).
• For the private savings-investment balance,
the closure rule is either that investment
spending adjusts in response to changes in
available funding or that savings adjust to an
exogenous spending level.
Domestic commodity markets
• Domestic demanders decide on import and
domestic shares in their demands on the basis
of the relative prices of commodities from
these two sources (foreign and domestic).
• Domestic suppliers (the activities) decide on
the shares for exports and domestic supplies
on the basis of the relative prices received in
these two markets (foreign and domestic).
Domestic commodity markets
• Flexible prices ensure balance between
demands for domestic output from domestic
demanders and supplies to the domestic
market from domestic suppliers.
Markets for factors (labor, capital,
natural resources, …)
• Reach balance between demands and
supplies via wage (or rent) adjustments.
• Factor demand curves are downward-sloping
reflecting the responses of production
activities to changes in factor wages.
• For most factors, within-period supplies are
exogenous.
Markets for factors
• Optional endogenous unemployment for
labor: a wage curve (a supply curve) is
upward-sloping until full employment is
reached – see figure.
• “Unemployment” is defined more broadly
than in official statistics to include un- and
under-employment – it should capture the
scope for the existing labor force to generate
a larger amount of effective labor (if the
incentives to work were to improve).
Factor market with endogenous
unemployment
5
Wage
4
3
Supply
2
Demand
1
0
85
90
100 - unemployment rate (%)
95
MDG “Production”
• The MDGs are “produced” by a combination
of determinants (including government social
services; see table) using a (reduced)
functional form that permits:
– replication of base-year values and elasticities
– calibration to additional point (typically one
possible set of conditions under which the MDG in
question is achieved)
– imposition of limit (maximum or minimum)
– diminishing marginal returns to the inputs
MDG outcomes
• For MDG analysis, classification of government demand by
function: social services (education, health, water-sanitation),
infrastructure, and “other government”.
Determinants of MDG Outcomes (X)
MDG
Household
Service consumption Wage Public infra- Other
delivery per capita incentives structure MDGs
2 Primary education
x
x
4. Under-five mortality
x
5. Maternal mortality
x
x
4
x
x
7w, 7s
x
x
x
7w, 7s
7w. Access to safe water
x
x
x
7s. Access to basic sanitation
x
x
x
MDG outcomes
• Two-level functions:
– constant-elasticity function at the bottom: Z = f(X)
– logistic function at the top: MDG = g(Z)
Logistic function
1.0
Logistic function
MDG
0.8
0.6
0.4
0.2
0.0
0
2
4
Z
6
8
Education and Labor
• Typically, education is divided into three
levels: primary, secondary, and tertiary.
• At each level, model generates
– enrollment
– rates of primary net intake, promotion, dropout,
repetition, continuation to next cycle
• At each level, outcomes are determined by
services per student and other determinants
(similar to MDG table).
Dynamics: Over time growth is due to …
• growth in factor stocks (shifting factor supply
curves), determined by
– investment and depreciation (capital stocks)
– demography and educational system (labor)
– exogenous trends (other factors)
• growth in total factor productivity (TFP), with
components that are
– endogenous (government capital stocks,
openness to trade); and
– exogenous (trend term)
Top-Down Poverty Analysis
• Microsimulation or built-in poverty module
• Built-in poverty module generates poverty
and inequality results that are fully integrated
with the MAMS simulations:
1. constant elasticity of poverty with respect to
per-capita welfare for each model household
2. log-normal distribution of per-capita welfare
within each model household
3. distribution of per-capita welfare within each
model household follows a real-world household
survey.
Common simulations
• Policies:
– Level and composition of government and
consumption and related investments.
– Levels of foreign grants to government (a tool
from the perspective of the rest of the world).
– Other financing: taxes, domestic and foreign
borrowing.
– MDG targeting
• Other shocks: technology (including
government efficiency), external
environment.
Data Requirements
• SAM in MAMS format (including institutional
capital accounts).
• Disaggregation of MDG- and educationrelated services needed for MDG version.
• Elasticities for trade, consumption,
production.
• MDG and education outcome elasticities.
• MDG and education calibration points.
User-Friendly Interface
• ISIM-MAMS = GAMS program + Interface.
• The user defines and runs MAMS simulations
in an Excel 2007 or 2010 environment.
• The MAMS Interface is connected to a
database that stores:
– data elements specific to the country dataset
and/or be needed to define scenarios
– set elements: commodities, activities, factors,
institutions, etc.
– default elasticities and closure and rules/policies
User-Friendly Interface
• The user-defined scenarios are saved as part
of the ISIM-MAMS application Excel file.
• Advanced users (“Expert Mode”) can change
and create of application datasets for ISIMMAMS.
User-Friendly Interface
• ISIM-MAMS = GAMS program + Interface.
• The user defines and runs MAMS simulations
in an Excel 2007 or 2010 environment.
• The MAMS Interface is connected to a
database that stores:
– data elements specific to the country dataset
and/or be needed to define scenarios
– set elements: commodities, activities, factors,
institutions, etc.
– default elasticities and closure and rules/policies
User-Friendly Interface: Screen Captures
Policy Issues and Insights
• Two main types of simulations:
– full achievement of key MDGs by 2015 (fix targets
year to year; flex policy tool) with alternative
financing mechanisms;
– alternative scenarios for public spending (in terms
of total resource envelopes and sector priorities),
financing (domestic and foreign), and efficiency of
public service production and delivery
Policy Issues and Insights
• Spending on HD vs. infrastructure.
– Infrastructure has more positive growth impact
while also having positive HD effects.
– Balanced scenarios more attractive in terms of
outcomes and politics.
• Income distribution. Scaled-up HD spending
raises educated wages except for long run
when this reverses.
Policy Issues and Insights
• Domestic financing vs. foreign aid. Aid pushes
difficult trade-offs to the side.
• Foreign aid and Dutch disease. Strength of DD
effect depends on the marginal import share
of government spending; effect is stronger for
HD-focused scenarios.
• Government allocative efficiency. Strong gains
from moderate reallocations of spending
growth from areas with small or no returns.
Yemen Application: Data
• Key elements of the database:
– a 2004 Social Accounting Matrix for Yemen
– data on MDGs, education, and the labor market
(including MOPICs MDG Needs Assessment)
– selective estimation of elasticities
• MAMS was combined with a microsimulation
methodology to estimate poverty and
inequality effect using microdata from
household survey.
Yemen Application: Scenarios
Name
Description
base
business as usual
aid-hd increase in aid with HD spending
aid-infra increase in aid with infra spending
eff-hd allocative efficiency gain with HD spending
eff-infra allocative efficiency gain with infra spending
tfp-hd productivity increase in the provision of gov. svc with HD spending
tfp-infra productivity increase in the provision of gov. svc with infra spending
human development spending = health, education, water and sanitation
Yemen Application: Growth
5.6
5.4
5.2
5.0
4.8
4.6
4.4
4.2
base
aid-hd
aid-infra
eff-hd
eff-infra
tfp-hd
tfp-infra
Yemen Application: MDG 4 (U5MR)
100
90
80
base
70
mdg-ftr
60
aid-hd
50
target
40
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
30
References
• Lofgren, Hans, Martin Cicowiez, and Carolina
Diaz-Bonilla, 2013. “MAMS – A Computable
General Equilibrium Model for Developing
Country Strategy Analysis”. pp. 159–276 in
Dixon, Peter B. and Dale W. Jorgenson, (Eds.),
Handbook of Computable General Equilibrium
Modeling. North Holland, Elsevier B.V.
• For more on MAMS, visit:
www.worldbank.org/mams