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

SENSITIVITY ANALYSIS- ROBUSTNESS Eudokia Balamou Department of Economics University of Patras

Two important issues in CGE models: 1. How the equilibrium relationships are obtained (elasticities) quantify how production, consumption, etc. adjust to altered economic conditions 2. How the model is closed (closure rules) reflect assumptions on how markets operate However choice of elasticities and closure rules have no effect on the calibration of the models have a considerable effect on simulation results Introduction

Sensitivity analysis is needed to test for the robustness of the findings Question to be answered: Are results affected by small or large amounts? Does the distribution of effects change? in terms of direction of impacts in terms of distribution of effects across rural-urban space Introduction

Sensitivity Analysis: Change of labour markets Archanes-Heraklion Keynesian labor market District Bruntal Neoclassical labor market Double the level of Armington elasticities Presentation of results for 2 scenarios: Soft modulation RDM-AGRI (Axes 1, 2)ultural Centered RD Measures Sensitivity Analysis

Archanes - Heraklion GDP at factor Cost Results of Sensitivity Analysis-Labor Closure SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Rural ,08-1,29 Primary ,83-1,03 Secondary ,71-7,03 Tertiary ,35-0,54 Urban ,05-0,55 Primary ,26-9,20 Secondary ,83-0,53 Tertiary ,28-0,17 Total ,00-0,58

Archanes – Heraklion: Domestic Production SOFTMODSOFTMOD (S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2) (S) Primary ,11-6,74 Secondary ,09-1,18 Tertiary ,27-0,20 Total Archanes – Heraklion: Producer Prices SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Primary ,478,44 Secondary ,261,29 Tertiary ,88-8,96 Results of Sensitivity Analysis-Labor Closure

Archanes – Heraklion: Factor Income SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) F-Uns. Labor ,23-1,86 F-Sk. Labor ,06-0,49 F-Capital ,02-0,49 F-RAgr.Land ,90-9,30 F-RLandH ,993,53 F-ULandH ,05-0,50 F-AGCAP ,86-18,76 F-AGRENTS ,45-17,27 Results of Sensitivity Analysis-Labor Closure

What did the sensitivity analysis on closure rules show? 1.In some cases there is a change of sign from + to – GDP urban sectors from RDM-AGRI (Axes 1, 2) scenario Domestic Production secondary-tertiary prod. (only RDM-AGRI (Axes 1, 2)) Factor Income Skill Labor and Capital from both scenarios 2.No significant changes in terms of the magnitude of effects Results of Sensitivity Analysis-Labor Closure

District Bruntal GDP at factor Cost SOFTMODSOFTMOD (S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Rural Primary Secondary Tertiary Urban Secondary Tertiary Total Results of Sensitivity Analysis-Labor Closure

District Bruntal: Domestic Production SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Primary , Secondary , Tertiary , Total , District Bruntal: Producer Prices SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Primary Secondary Tertiary Results of Sensitivity Analysis-Labor Closure

District Bruntal: Factor Income SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) F-R.Uns. Labor ,09-3,42 F-R.Sk. Labor ,23-1,35 F-U.Uns. Labor ,790,82 F-U.Sk. Labor ,860,90 F-Capital ,670,54 F-R.Agr.Land ,820,22 F-RLandH ,110,34 F-ULandH ,241,42 F-AGCAP ,39-41,41 F-AGRENTS ,39-41,41 Results of Sensitivity Analysis-Labor Closure

What did the sensitivity analysis on closure rules show? 1.No changes in sign in the case of the GDP 2.Changes in sign in the case of the SOFTMOD in domestic production and in Urban Unskilled and Skilled Labor and Urban Land Housing. 3.No significant changes in terms of the magnitude of effects Results of Sensitivity Analysis-Labor Closure

Archanes - Heraklion GDP at factor Cost Results of Sensitivity Analysis-Elasticities SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2) (S) Rural ,08-1,99 Primary ,830,14 Secondary ,71-24,06 Tertiary ,35-0,14 Urban ,050,11 Primary ,26-7,92 Secondary ,830,17 Tertiary ,280,46 Total ,000,02

Archanes – Heraklion: Domestic Production SOFTMODSOFTMOD (S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2) (S) Primary ,01 Secondary ,99 Tertiary ,43 Total Archanes – Heraklion: Producer Prices SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Primary ,4715,23 Secondary ,261,24 Tertiary ,88-9,50 Results of Sensitivity Analysis-Elasticities

Archanes – Heraklion: Factor Income SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) F-Uns. Labor ,23-1,73 F-Sk. Labor ,06-0,36 F-Capital ,02-0,42 F-R.Agr. Land ,90-9,58 F-RLandH ,990,59 F-ULandH ,05-0,45 F-AGCAP ,86-16,44 F-AGRENTS ,45-14,68 Results of Sensitivity Analysis-Elasticities

What did the sensitivity analysis on elasticities? 1.In some cases there is a change of sign but this are very limited (only in GDP and factor income) 2.No significant changes in terms of the magnitude of effects Results of Sensitivity Analysis-Elasticities

District Bruntal GDP at factor Cost Results of Sensitivity Analysis-Elasticities SOFTMODSOFTMOD (S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Rural Primary Secondary Tertiary Urban Secondary Tertiary Total

District Bruntal: Domestic Production SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Primary ,44-28,23 Secondary ,610,28 Tertiary ,860,80 Total ,380,18 District Bruntal: Producer Prices Results of Sensitivity Analysis-Elasticities SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) Primary Secondary Tertiary

District Bruntal: Factor Income Results of Sensitivity Analysis-Elasticities SOFTMODSOFTMOD(S) RDM-AGRI (Axes 1, 2) RDM-AGRI (Axes 1, 2)(S) F-R.Uns. Labor ,09-2,69 F-R.Sk. Labor ,23-0,61 F-U.Uns. Labor ,790,59 F-U.Sk. Labor ,860,68 F-Capital ,670,42 F-R.Agr.Land ,821,37 F-RLandH ,110,92 F-ULandH ,241,01 F-AGCAP ,39-45,23 F-AGRENTS ,39-45,23

What did the sensitivity analysis on elasticities? 1.No significant changes in terms of sign 2.No significant changes in terms of the magnitude of effects Results of Sensitivity Analysis-Elasticities

Sensitivity analysis was carried out to test for the robustness of the findings Policy simulations were repeated assuming different labor market closure rules (Keynesian vs. Neoclassical) double the levels of Armington elasticities Both models are a little bit sensitive in term of change in labor market closure rule especially for GDP and factor income. Conclusions

Both models not sensitive to changes in elasticities: the results were affected but by small amounts and there were no qualitative changes in terms of direction of impacts or distribution of effects across rural-urban space. Need to be very careful when it comes to the choice of closure rules and elasticities Closure rules must be suitable for the study region in order to reflex the correct results Conclusions

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