Doctoral Degrees (Agricultural Economics)

Permanent URI for this collection

https://scholar.sun.ac.za/handle/10019.1/514

Browse

Browsing Doctoral Degrees (Agricultural Economics) by Subject "CGE models"

Now showing 1 - 1 of 1
  • Thumbnail Image
    Item
    Modelling multi-product industries in computable general equilibrium (CGE) models
    (Stellenbosch : Stellenbosch University, 2013-03) Punt, Cecilia; McDonald, Scott; Vink, Nick; Stellenbosch University. Faculty of AgriSciences. Dept. of Agricultural Economics.
    ENGLISH ABSTRACT: It is common practice in computable general equilibrium (CGE) models that the output composition of multi-product industries remains constant despite changes in relative prices of products. The results of any scenario will show that products produced by a single industry will still be produced in the same ratio to each other as reflected by the base data. The objective of the study was to develop a CGE model for South Africa in which this assumption of fixed composition of output can be selectively relaxed. In order to allow industries to adjust their output composition in response to changes in relative prices of products a Constant Elasticity of Transformation (CET) function and the related first order condition were incorporated into an existing CGE model. This alternative specification of an output transformation function in the model enables the modeller to allow selected multi-product industries to increase production of products that show greater price increases relative to other products. The first order condition of the CET function determines the optimal combination of products for each industry. With the inclusion of the CET function there is a trade-off between theoretical rigour of the model and realism of the results, therefore an assumption of input-output separability was introduced as a way of recognising that the inclusion of a CET function violates the assumption that prices in the same row of a social accounting matrix (SAM) are equivalent. The model was calibrated with a SAM for South Africa for 2007 that was developed for purposes of this study. Set controls were included in the model to generalise the model in order that it can be calibrated with data from other countries as well. The SAM for South Africa contains provincial level information in the accounts for agriculture, labour and households. The agricultural industries are defined by geographical area, hence these industries are particularly good examples of multi-product industries that respond to relative price changes when determining production levels of individual products. The adjusted CGE model was used to analyse four scenarios focusing on selected issues mentioned in the National Development Plan for South Africa released by the National Planning Commission in 2011. The scenarios relate to increases in fruit exports as a result of global positioning, technical efficiency improvements for the agricultural sector through continued research and development, factor productivity growth in government and selected services sectors resulting from fighting corruption and curbing strikes, and augmenting the supply of skilled labour through an improvement in the quality of education. The results of the adjusted model show the desired effect: producers produce relatively more of the products for which they can get a relatively higher price and vice versa. This holds true regardless of whether the level of industry output increases or decreases. The impact of the model adjustment and the effects of changes in the levels of elasticities and choice of variables to close the model were analysed as part of the sensitivity analyses. The impact of changes in the functional form, elasticities and model closures on results, are different for each scenario.