1. The TERA CGE models: analysing labour migration in diverse regional economies in the EU Euan Phimister (University of Aberdeen, UK)

2. SAM & General Equilibrium models Major Part of TERA project This Presentation and Next Complementary Aim - motivation, implementation, usefulness Structure Background Case Study Areas Modelling Approach SAMs and CGE Models Model Structure Using Models - labour migration.

3. Background TERA: Economic development in remote rural areas Aims: Role territorial factors which influence development review whether existing policies take account of factors propose new policy interventions. “The trends and choices that affect rural areas cannot be studied in isolation from what is going on in non-rural areas” (Saraceno, 1994)

4. Approach Regional/Local Modelling within region rural-urban linkages 6 Case Study areas. Reflect different Economic and Institutional Context Spatial Scale Rural-urban relationship

5. OECD Rural Classification

6. Case Study Differences Spatial Scale NUTS3 to NUTS 4/5 Population levels 110K – 400K Rural Pop Densities - 9.5 - 125 persons/km squared (Finland) –(Italy) Economic Size 0.5bn - 2bn euros/year GDP per capita. Developed (UK) – less developed (Latvia) Rural share of GDP – 5% (Greece) to 60%(Finland)

7. CZFINGRITALATUK Population 418 481170 200142 259282 020364 345115 899 GDP (m Euros) 2129.32982.81524.12953.6592.22749.1 Rural Share (%) 21.9958.14.2832.3941.340.5 Urban Share (%) 78.0141.995.7267.6158.759.5 GDP Per Capita (Euros) 5088169191071110473162523724 Rural GDP Per Capita 448214201143456643112715599 Urban GDP per Capita 5289230471059314470236136731 CASE Study Areas: Summary Statistics

8. Modelling Social Accounting Matrices (SAM) - all transactions given point in time SAM - basis for Computable Equilibrium Model (CGE) SAM Construction - each study area Existing secondary sources, e.g. national input-output tables Primary Data collection Survey of Households and Business survey, interviews with key informants

9. Computable Equilibrium Model (CGE) Behaviour of representative agents in economy Producers and Traders – maximise profits Consumers – maximise their well-being (have demand curves) Government collects taxes and makes transfers (tax rates and transfers are exogenously set) Model Closure rules – assumptions on how markets operate e.g. labour All transactions in “economy” accounted for. TERA-CGE Models IFPRI Standard CGE Model (Lofgren et al) (www.ifpri.org/pubs/microcom/micro5.htm )www.ifpri.org/pubs/microcom/micro5.htm Disaggregation of Accounts allows rural-urban analysis

11. Level of Disaggregation CZFINGRITALATUK Activities/Industries155218233338 Of which Rural8239121719 Commodities152820191519 Factors of Productions109 6 Of which Rural555536 Households5813488 Of which Rural346244 1 Rest of World, 1 Government sector all case study areas

12. Production structure Urban/Rural Local/Regional

13. Factors and Households

14. CGE Model Estimation Each case study area Data - SAM plus other literature estimates Procedure - calibrate CGE models so each CGE replicates Case study SAM CGE Model Usefulness Full Picture of case-study economic transactions Controlled experiments – what if ? Example Simple Scenario – labour migration How different are the effects of large labour inflow/outflows in case study areas?

16. Case Study Areas Evidence Significant Growth Greek, Scottish Study areas Decline Finnish and Latvian areas Composition effect ? Finland - out migration of highly educated people Scotland- in migrants (skilled) but work in low skilled occupations Scenario 1 + 10% change in total labour supply all areas Scenario 2 a)-20% skilled labour category Czech R, Finland, Latvia b)+20% unskilled labour category Greece, Italy, UK Key Assumptions Each case study area separate labour market Urban-rural labour market integrated within case study area Capital fixed by sector, Government spending fixed

17. Scenario 1 +10% change in total labour supply all areas Aggregate level (GDP) broadly similar effects across case study areas +10% positive impact 5-8% (-10% approximately same negative effect) Components of GDP - Larger differences Rural-urban decomposition +10% positive impact Rural GDP effects 2-9% Mostly Rural same or less than Urban effect (except Italy) Largest differences GR, UK Rural-urban sectoral decomposition +10% positive impact Mostly Rural sectoral effect same or less than Urban effect (except Italy) Largest differences GR, UK

18. Scenario 1 +10% change in total labour supply all areas % Impact on Real Gross Domestic Product (GDP) CZFINGR ITLATUK Private Cons. 6.74.34.28.93.92.6 Investment 16.243.615.0143.525 Reg Exports 6.84.24.18.69.37.4 Reg Imports 8.412.76.47.44.98.1 GDP at Factor Cost 6.55.34.98.25.65.7

19. Scenario 1 +10% change in total labour supply all areas % Impact on Real Gross Domestic Product (GDP) at Factor Cost CZFINGRITLATUK Rural6.45.21.99.05.23.3 R-primary6.21.31.96.75.52.8 R-manufacturing8.36.92.98.58.46.1 R-services4.95.72.59.73.82.7 Urban6.95.357.75.87.3 U-manufacturing8.66.78.87.88.48.9 U-services5.74.84.27.64.46.9

20. Scenario 2 a) -20% skilled labour category Czech R, Finland, Latvia b) +20% unskilled labour category Greece, Italy, UK Areas losing skilled labour Big differences in overall loss 5-12.6% Urban areas worst hit Broadly, impact by sector comparable Areas gaining unskilled labour Some differences in overall gains 2-4% No clear pattern whether Urban or rural areas gain most Differential sectoral impact by rural-urban Ratio Skilled: unskilled wages increases both losing & gaining areas

21. Scenario 2 a) -20% skilled labour category Czech R, Finland, Latvia b) +20% unskilled labour category Greece, Italy, UK % changes in GDP at Factor Cost -20% skilled +20% unskilled CZFINLATGRITUK Overall-12.6-5.3-6.94.34.81.8 Rural-12.2-4.7-5.22.65.21.3 R-primary-10.9-0.7-7.71.47.71.1 R-manufacturing-15.7-5.0-13.43.67.00.8 R-services-9.7-6.1-1.43.53.91.5 Urban-13.4-6.1-8.04.6 2.1 U-manufacturing-16.4-5.1-14.28.66.91.4 U-services-11.4-6.4-4.73.41.52.3

22. Summary & Conclusions Modelling Approach SAMs and CGE CGE Models capture Case Study areas differences (?) Labour migration General – Rural GDP case study area differences Urban effect often bigger than Rural Skills mix-differential losses and gains Example CGE - What if? Further simulations – tailored to specific circumstances of each case study area Range simulations envisaged – Tourism, Transport, Agric Policy

25. Scenario 1 -10% change in total labour supply all areas % Impact on Real Gross Domestic Product (GDP) CZFINGR ITLATUK Private Cons.-6.9-4.5-4.3-9.0-4.1-3.1 Investment-17.1-45.2-16-15-1.4-29 Reg Exports-7.0-4.5-4.3-8.7-9.7-8.8 Reg Imports-8.8-13-6.8-7.6-5.7-9.5 GDP at Factor Cost-6.7-5.5-5.1-8.3-5.9-6.4