Demonstration Workshop Brussels, 26.11.2008

1. Demonstration of capabilities of a bi-regional CGE model to assess impacts of rural development policies (RURMOD-E) Demonstration WorkshopBrussels, 26.11.2008

2. THE STUDY REGIONS AND THEIR REFLECTION IN THE MODEL STRUCTURE Eudokia Balamou Department of Economics University of Patras

3. STRUCTURE OF PRESENTATION • General Characteristics of the Study Areas (Greek – Czech Study areas) • Characteristics of the Case Study Area SAMs • SAM accounts (activities, commodities, factors, households, other accounts) • Key economic indicators from the SAM • Calibration and Elasticities • Closure Rules

4. GENERAL CHARACTERISTICS GREECE: ARCHANES-HERAKLION LOCATION: • North Central Crete • Hinterland of the Prefecture of Heraklion • 17 km from the capital of the Prefecture (Heraklion) i.e our URBAN area (approx. 30min.) ADMINISTRATIVE LEVEL: • Municipality of Archanes – City of Heraklion (both NUTS 5) • Prefecture of Heraklion (NUTS 3) Area increasingly affected by daily commuting towards adjacent areas.

5. GENERAL CHARACTERISTICS TOTAL AREA: • 31.536 square kilometers (28 square kilometers of agricultural land) • LFA: 92,20 % of total area LAND USE: • Agriculture (including fallow land) 55.2% • Forest and Forest land 33.7% • (including non-primary forest) • Settlements (3.5 square kilometers) 11.1% TOTAL POPULATION: Archanes 4 548 people 1991-2001: 6.3% Heraklion: 137 711  1991-2001: 14.2%

6. GENERAL CHARACTERISTICS ECONOMIC ACTIVITY Archanes Agriculture: vine and olive cultivation Secondary: SMEs which process local farm output Tertiary: provides off-farm income. Trade – Tourism Heraklion: Large number of industries / modern tertiary sector

7. GENERAL CHARACTERISTICS GZECH REPUBLIC: DISTRICT BRUNTAL LOCATION: • Northeast border of the Moravia-Silesia Regions • Long distance from the capital of Czech (350km) TOTAL AREA: • 5535 square kilometers (7% of the country) LAND USE: • Agriculture land more than 50% • Forest and Forest land more than 35% • Settlements approx. 10% TOTAL POPULATION: Bruntal 105 139 people 1991-2001: 0.69% Ostrava 316 744 1991-2001: -3.25%

8. GENERAL CHARACTERISTICS ECONOMIC ACTIVITY: • Industrial – Agricultural area Bruntal • Primary: 437 firms  91% in agriculture and 9% forestry •Agriculture: 398 firms crops and animal production Very specialized firms are oriented on cattle, sheep goats and horse breeding and the growing of ornamental wood Secondary: metal and other manufacturing Tertiary: Trade - Tourism

9. GENERAL CHARACTERISTICS Ostrava (urban centre) • High share of heavy industry (especially coal mining, ferrous metallurgy and heavy engineering) • Agricultural production and tertiary sector performs only additional function • But due to a decrease in heavy industry the status of administrative, educational and cultural centre of the region is beginning to dominate

10. GENERAL CHARACTERISTICS Czech Republic: District Bruntal • Economically under-developed area with a high environmental endowment, but with under-developed recreational potential. Greece: Archanes-Heraklion • Agriculture very important for the rural part of the area (Archanes). Rich potential for tertiary economic activity (particularly in tourism). Challenges include increasing value added of farm products (processing) and upgrading quality standards. Development policy objective: increase links between agriculture and the rest of the local economy.

11. Characteristics of the Case Study Area SAM’s GREECE: ARCHANES-HERAKLION Activities  Spatial Distinction

12. Characteristics of the Case Study Area SAM’s Commodities  Non-spatial distinction

13. Characteristics of the Case Study Area SAM’s Factors of Production  Spatial distinction

14. Characteristics of the Case Study Area SAM’s Households are defined by: • Rural vs. Urban • Poor/Middle-Income vs. Wealthy • Commuter (to the other part of the study area) vs. Commuter to the Rest of the World (i.e. outside the study area) vs. Other (non-commuter) • Agricultural • Rest-of-World Commuters and Agricultural households were not distinguished by income • Tourist: shows the tourist demand  thus 13 household accounts are defined as follows:

15. Characteristics of the Case Study Area SAM’s

16. Characteristics of the Case Study Area SAM’s • Direct Taxes: on firms and households • Indirect Activity Taxes: on firms, including community taxes and other indirect taxes on firms, e.g. excise duties, petrol taxes. Also it includes subsidies as a negative tax • Indirect Sales Taxes: on commodities. • Government: not separately distinguished from central government • Rest of the World Account: gives detail of commodity imports and exports. • Savings/Investments • Margins: trade and transport

17. Key Economic Indicators

18. Key Economic Indicators

19. Key Economic Indicators

20. Key Economic Indicators Supply of Commodities • Domestic Production  Public Services, Restaurants and Catering, Accommodation, R-Trade • Imports  Other Food and Drinks and Other Manufacturing Demand of Commodities • Intermediate Use (rural)  Trade (R&W), Other Food and Drinks • Intermediate Use (urban)  Other Food and Drinks, Other Private Services, Banking and Finance • Final Domestic Cons. Public Services, R-Trade, Construction • Exports  Restaurants & Catering, Accommodation

21. Characteristics of the Case Study Area SAM’s CZECH REPUBLIC: DISTRICT BRUNTAL Activities  Spatial Distinction

22. Characteristics of the Case Study Area SAM’s Commodities  Non-spatial distinction

23. Characteristics of the Case Study Area SAM’s Factors of Production  Spatial distinction

24. Characteristics of the Case Study Area SAM’s Households are defined by: • Rural vs. Urban • Commuter or “other” • Agricultural (in rural area only) • Tourists • No Rest-of-World households were defined • thus 6 household accounts are defined as follows: • Rural Commuter – Rural Other, • Urban Commuter – Urban Other • Rural Agricultural • Representative Tourist

25. Characteristics of the Case Study Area SAM’s • Direct Taxes: on firms and on households • Indirect Activity Taxes: on firms, including community taxes and other indirect taxes on firms, e.g. excise duties, petrol taxes. Also subsidies as negative indirect activity tax • Import Tariffs: the proportion of import duties to total output on the regional level • Government: local governments (urban and rural) were not distinguished from central government • Rest of the World • Savings/Investments

26. Key Economic Indicators

27. Key Economic Indicators

28. Key Economic Indicators

29. Key Economic Indicators Supply of Commodities • Domestic Production  Private and Public Services, Metal Products • Imports  Metal Products, Other Manufacturing Demand of Commodities • Intermediate Use (urban)  Private and Public Services, Other Manufacturing • Intermediate Use (rural)  Private and Public Services, Metal Products • Final Domestic Cons. Private and Public Services, Other Manufacturing • Exports  Metal Products, Other Manufacturing

30. Calibration and Elasticities Calibration: the values of the normalizing (free parameters) are determinate so as to replicate the observed flow values incorporated in the SAM assuming all the equations describing the equilibrium in the system (model) are met in the benchmark period. • For modeling (i.e. simulation) purposes, behaviour of the economy under various “shocks” required the specification of elasticity coefficients which quantify how production, consumption, etc. adjust to altered economic conditions.

31. Calibration and Elasticities • Commodity Elasticities •Armington: the elasticity of substitution between imports and domestic output in domestic demand. • CET: the elasticity of transformation for domestic marketed output between exports and domestic supplies Archanes – Heraklion: different elasticities for each commodity  0.6 up to 1.2 (Armington) and CET twice the Armington District Bruntal : 2.0 for all commodities (Armington) and CET 1.6 for all commodities

32. Calibration and Elasticities • Production Elasticities • between factors: bottom of technology nest • between aggr. factors and intermediate inputs: top of technology nest • commodity output aggregation elasticity Archanes – Heraklion: • Bottom technology nest: 0.5-1.2 • Top technology nest: 0.6 • Commodity elasticity: 6 (IFPRI default) District Bruntal: •Bottom technology nest: 0.93 • Top technology nest: 0.73 • Commodity elasticity: 1.3

33. Calibration and Elasticities • Household Consumption Elasticities Archanes – Heraklion: • Frisch parameter: -1 • Expenditure elasticity for market demand: agricultural products 0.4-0.5, wine 0.6, other food and drinks 0.7, the rest 1 • Expenditure elasticity for home-consumption: 1 District Bruntal: • Frisch parameter: -1 • Expenditure elasticity for market demand: 1 • Expenditure elasticity for home-consumption: 1

34. Closure Rules Model Closure Rules  reflect assumptions on how markets operate Archanes – Heraklion: • Labour market: fixed quantity supplied and flexible economy-wide wages  neoclassical closure rule • Capital: immobile for agriculture but mobile for rest sectors • Government: flexible government savings; fixed direct tax rates • Rest of the World: flexible foreign savings; fixed real exchange rate • Savings/Investment: Flexible capital formation; fixed MPS for all non government institutions

35. Closure Rules District Bruntal: • Labour market: fixed economy-wide wages and flexible quantity supplied  Keynesian closure rule • Capital: immobile for agriculture but mobile for rest sectors • Government: flexible government savings; fixed direct tax rates • Rest of the World: flexible foreign savings; fixed real exchange rate • Savings/Investment: fixed government savings; uniform direct tax rate point change for selected institutions

36. THANK YOU FOR YOUR ATTENTION!!!