1. The impact of the global financial crisis on the Asia-Pacific regionby
Xianming Meng (Sam)
Mahinda Siriwardana
and Judith Mcneill
Institute for Rural Futures
University of New England
Australia

2. Outline of Presentation
The impact of the global financial crisis on the Asia-Pacific region
Outline of Presentation
Background
Partial and general equilibriums
An illustration of CGE models
GTAP model and simulation scenarios
Macroeconomic effects
Sectoral effects
Policy effects
Conclusion

3. Annual change in real GDP (%)
The impact of the global financial crisis on the Asia-Pacific region
Annual change in real GDP (%)

4. Fiscal stimulus: government spending growth rates (%)
The impact of the global financial crisis on the Asia-Pacific region
Fiscal stimulus: government spending growth rates (%)

5. Partial and general equilibriums (1)
The impact of the global financial crisis on the Asia-Pacific region
Partial and general equilibriums (1)
Price
Equilibrium
QD = Qs
Partial equilibrium: demand equals supply in one or more (but not all) markets.
General equilibrium: demand equals supply in all markets
Can we achieve general equilibrium by equilibrating market one by one? S D P* Q*
Quantity of Grapes

6. Partial and general equilibriums (2)
The impact of the global financial crisis on the Asia-Pacific region
Partial and general equilibriums (2)
Links between markets
Input-output linkage
Labour capital linkage
Substitutes (e.g. Rice and Wheat) and complements (e.g. Peanut butter and Bread)
So we need to think about the equilibriums of all markets simultaneously.

7. An illustration of CGE models (1)
The impact of the global financial crisis on the Asia-Pacific region
An illustration of CGE models (1)
A simple economic system
Return on labour
Sector Output
Intermediate demand
Intermediate inputs
Return on capital
Government demand
Household demand +
Foreign demand
Investors demand ═ ║
Exchange rate
investment level
Taxes & subsidies
Capital stock
Labour
supply
Rate of Return
Real wage
Tax
rates
Technique Change
Consumption
disposable income
GDP

8. An illustration of CGE models (2)
The impact of the global financial crisis on the Asia-Pacific region
An illustration of CGE models (2)
Activity
Level
Good 1
Good G
Primary Factors
CES
Domestic Good 1
Labour
Capital
Imported Good 1
Domestic Good G
Imported Good G
up to
Leontief
Labour type 1
Labour type N
A nested production function

9. An illustration of CGE models (3)
The impact of the global financial crisis on the Asia-Pacific region
An illustration of CGE models (3)
Input-Output Table
Sales by
commodity
Purchases by Industry
Producers
Investors
Households
Government
Exports
Emissions
Change in Inventories
←I→
←H→
←1→
←I+H →
Basic
Flows ↑
C*S ↓
V1BAS
V2BAS
V3BAS
V4BAS
V5BAS
V6BAS
V7BAS
Taxes
V1TAX
V2TAX
V3TAX
V4TAX
V5TAX
V6TAX
V7TAX
Labour O
V1LAB
S = source of commodity (i.e. domestic or imported)
C = Number of Commodities
I = Number of industries
O = Number of Occupation types
H = number of households
Capital 1
V1CAP

10. The impact of the global financial crisis on the Asia-Pacific region
GTAP model
113 global regions (countries) and 57 sectors and commodities, 1 global bank, 1 international transportation service, and a representative household and government for each region,
For the purpose of this study they are aggregated into 36 global regions and 28 sectors and commodities.

11. The impact of the global financial crisis on the Asia-Pacific region
Scenarios
Scenario 1: 60% decrease in productivity in all financial sectors and 60% decrease in regional investment.
Scenario 2: Scenario 1 plus 40% decrease in household consumption.
Scenario 3: Scenario 2 plus 20% increase in government spending.
Scenario 4: Scenario 2 plus 20% decrease in production tax rates.
Scenario 5: Scenario 3 plus a 20% increase in the import tariff rate.

12. Macroeconomic results (1)
The impact of the global financial crisis on the Asia-Pacific region
Macroeconomic results (1)
Percentage change in GDP and consumption

13. Macroeconomic results (2)
The impact of the global financial crisis on the Asia-Pacific region
Macroeconomic results (2)
Percentage change in imports and exports

14. Macroeconomic results (3)
The impact of the global financial crisis on the Asia-Pacific region
Macroeconomic results (3)
Percentage change in profitability (industry-average)

15. Macroeconomic results (4)
The impact of the global financial crisis on the Asia-Pacific region
Macroeconomic results (4)
Change in Equivalent Variation (US$ million)

16. The impact of the global financial crisis on the Asia-Pacific region
Sectoral effects

17. Percentage change in real GDP
The impact of the global financial crisis on the Asia-Pacific region
Policy effects
Percentage change in real GDP

18. The impact of the global financial crisis on the Asia-Pacific region
Conclusions
An event like GFC has a devastating effect on regions worldwide. It hits harder on the countries with high-exposure through trade, investment or financial mechanism.
The rate of return on capital will decrease significantly during an event like the GFC, but international trade will increase when countries try to reduce the cost in order to survive the GFC.
The sectoral effects show that most industries will experience contraction, especially for dwelling, recreation, trade, and textile. But industries like public services and construction will expand during the GFC due to the government expansionary fiscal policy.
Although both increases in government spending and decreases in production tax rates can mitigate the negative effects of the GFC, production tax cuts appear much more effective. A protectionism policy would aggravate the effect of the GFC.

19. Let’s hope for the best, but prepare for the worst. Thank you!