Demonstration of capabilities of a biregional CGE model to assess impacts of rural development polic

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Demonstration of capabilities of a bi-regional
CGE model to assess impacts of rural development
policies (RURMOD-E)

• Demonstration WorkshopBrussels, 26.11.2008

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SPECIFICATION OF POLICY SCENARIOS
Demetrios Psaltopoulos Department of
Economics University of Patras
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Introduction

• Objective
• Present specification of the 5 RURMOD-E Policy
  Scenarios
• Including causal mechanisms
• Policy Scenarios
• Full Decoupling
• Increased Modulation (CAP H-C proposal)
• i) Demand for construction
• ii) Soft Modulation
• Agriculture-centred RD Measures
• Diversification of Rural Economy project
• Renovation and Development of Villages project

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• Scenario 1 Full Decoupling (FULL DEC)
• Coupled support flowing to the agricultural
  sector becomes fully decoupled.
• CAP subsidies (base year) set to zero value
  transferred from govt. to agricultural HSH (SFP).
• No modulation assumed.
• Two Direct Impacts
• Increase in indirect activity tax rate for
  agriculture
• Increase in the income of agricultural HSH

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• Scenario 1 Full Decoupling Direct Impact 1
• ? Net Indirect Activity Tax of Agricultural
  Sector
• ?
• Value Added of Agricultural Sector
• ?
• Activity of the Agricultural Sector ? ?Domestic
  Production of Agricultural Products
• Labour is free from agriculture ? ? PCap. PLand
• ?
• Agricultural is linked with the other Rural/Urban
  Sectors ? Second-order Production, Price, HHS
  Income Effects (??)
• ? AGGREGATE AND NET RURAL/ URBAN EFFECT DEPENDS
  ON COMPETING FORCES

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Scenario 1 Full Decoupling Direct Impact 2 ?
Direct Income Transfers from GOV to Agr. HHS ? ?
Income and Spending of Agr. HHS ?

• Goods Produced in the study regions
• ?
• Factor and Goods Prices ?? Production

Leak towards the RoW ? Second-order Production,
Price HHS Income effects (??)
TOTAL EFFECT DEPENDS ON INTERACTION OF THE TWO
MECHANISMS
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• Scenario 2 Increased Modulation (MODUL, SOFT
  MOD)
• Income support to agricultural HSH is reduced by
  13.
• Equivalent amount national co-financing (25 of
  total) transferred to Pillar 2 as increased
  demand for
• Construction (MODUL)
• Construction, Machinery, Education, Public
  Administration (equal - SOFT MOD)
• Private contribution not taken into account.
• Three Direct Impacts
• Scenario 1 Impacts
• Increased investment demand impact

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Scenario 2 Increased Modulation

• Exogenous Investment Demand of the Construction
  (etc.) Commodity(ies)
• ?
• Domestic Production of the Construction (etc.)
  Commodity(ies)
• ?
• Domestic Activity of the Construction (etc.)
  Sector(s)
• What Happens with the Domestic Activity of other
  Sectors? Usually positive effects in other
  sectors, but possible trade-off due to decrease
  in AgrHHS Consumption.
• ?
• ? ? Employment, ? ? GDP

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Scenario 3 Agriculture-centred RD Measures
(RDM-AGRI (Axes 1,2))

• Income support to agricultural HSH is reduced by
  13.
• Equivalent amount national co-financing (25 of
  total) transferred to Pillar 2 for Axes 1 and 2
  measures.
• To that we add study-area-specific public
  expenditure on Axes 1 and 2 measures average per
  annum for 2000-2006 (Greece) and 2004-2006.(Czech
  Republic)
• Distribution of expenditure to measures follows
  the 2000-2006 (Greece) and 2004-2006 (Czech
  Republic) patterns, respectively
• Axis 1 expenditure Increased demand for
  construction (70) and machinery (30) Farm
  Investment Plans Young Farmers Processing
  and increase in the income of Agricultural HHS
  (Early Retirement)
• Axis 2 expenditure Increased farm output
  (Agri-environment) and increase in the income of
  Agricultural HHS (LFA)
• Archanes-Heraklion
• Axis 1 67 of P2 (16 Early Retirement 51
  FIS, YFS, FP)
• Axis 2 33 of P2 (1.4 Agri-env. 31.6 LFA)
• Bruntal
• Axis 1 3.7 of P2 (2.6 FIS, YFS, FP 1.1
  Early Retirement)
• Axis 2 96.3 of P2 (43.3 Agri-env. 53 LFA)

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Scenarios 4 and 5 Rural Development (Axis 3)
Projects

• Diversification of Rural Economy project (311)
• Renovation and Development of Villages project
  (322)
• Real data from 2 projects implemented in the
  Greek study area
• Same shock to both models
• Expenditure (construction stage)
• Business turnover (311)
• Estimate of increase in tourism (322)
• Real values (base-year)
• Potentially we could also assess
• Effects of change in local purchasing pattern
  (311)
• Effects of migration of urban HSH to rural area
  (322)

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Scenario 4 Diversification of Rural Economy
project (311, RDIVERS)

• Agrotourism unit
• 12 rooms 24 beds
• Surrounding area infrastructure building
  machinery and equipment
• Total cost (2004 prices) is 519.200 Euro (55
  Public Expenditure 45 Private)
• Distribution
• Energy (40-41) 0.4
• Wholesale Trade (50-51) 1.3
• Retail Trade (52) 0.5
• Other Manufacturing (29) 6.8
• Private Services (70-74) 4.4
• Furniture (36) 3.8
• Construction (45) 82.8
• New Business turnover (55) 119000 Euro per annum

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Scenario 5 Renovation and Development of
Villages project (322, RENOV)

• Village Square
• Total cost (2004 prices) is 228858 Euro (100
  Public Expenditure)
• Distribution
• Energy (40-41) 18.5
• Private Services (70-74) 18.9
• Construction (45) 62.6
• Estimate of increase in tourism flows 10 per
  annum

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Scenarios 4 and 5 Rural Development (Axis 3)
Projects

• Diversification of Rural Economy project (311)
• Renovation and Development of Villages project
  (322)
• Real data from 2 projects implemented in the
  Greek study area
• Same shock to both models
• Expenditure (construction stage)
• Business turnover (311)
• Estimate of increase in tourism (322)
• Real values (base-year)

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THANK YOU FOR YOUR ATTENTION!!!