Country-Wide Water-Economy Links: An Integrated Modeling Approach with Application to Pakistan By...
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Transcript of Country-Wide Water-Economy Links: An Integrated Modeling Approach with Application to Pakistan By...
Modeling Economywide Impacts of Water Policies in Pakistan
Sherman Robinson and Arthur Gueneau International Food Policy Research Institute (IFPRI)
December 14, 2012 - Islamabad
Plan of the Presentation
• Motivation of the work • Presentation of the CGE-W model
– CGE model: IFPRI standard model – Water model: IBMR – Links: CGE-W
• Preliminary illustrative results • Future work and conclusion
2
Motivation
• Pakistan is subject to increasing water stress – Expanding agriculture relies heavily on irrigation – Hydropower important for increased energy demand
• Water policies have a large impact on the agricultural and power sectors – Impacts are transmitted to the rest of the economy
through markets and changes in prices – Potential use of simulation models to analyze
water/economy/policy links
3
Modeling Paradigm
• CGE-W is a water/economic simulation model – Water policies influence distribution of water – Repercussion on crop yields – Yield changes shock agricultural supply – Economy reacts by reallocating production factors
through market mechanisms and price changes – Changes in prices affect farmers’ decisions for the
following year
• Economic policies also have indirect impacts on the water sector 4
IFPRI Dynamic CGE-W Model
CGE model
• Runs with economic policy options • Base-year water stress
Water demand
• Industrial and domestic water demand • Agricultural area (based on prices)
IBMR
• Optimizes the water distribution • Calculates water shortages
Water stress
• Calculates the impact of water stress on yields • Calculates the depletion of groundwater associated
CGE model
• The yield reduction (or increase) impacts the agricultural production • Calculates the new economic output
5
Why a coupled model?
• There are economic models with water factors – Do not capture the complexity of the Indus basin
• There are water models with economic variables – Do not capture economywide links between
agriculture and the rest of the economy
• Our paradigm: Let each model do what it is best at and make them talk to each other
Computable General Equilibrium
CGE model
• Runs with economic policy options • Base-year water stress
Water demand
• Industrial and domestic water demand • Agricultural area (based on prices)
IBMR
• Optimizes the water distribution • Calculates water shortages
Water stress
• Calculates the impact of water stress on yields • Calculates the depletion of groundwater associated
CGE model
• The yield reduction (or increase) impacts the agricultural production • Calculates the new economic output
7
Computable General Equilibrium (CGE) Models
• A standard tool of economic and policy analysis for the past 40 years
• Simulates operation of a market economy with supply/demand equilibrium determining prices
• IFPRI Standard CGE model (Lofgren and Robinson)
8
9
Stylized CGE Model Structure
Activities
Commodity Markets
Factor Markets
Rest of the World
Households Government Sav./Inv.
Factor Costs
Wages & Rents
Intermediate Input Cost
Sales
Private Consumption
Taxes
Domestic Private Savings
Government Consumption
Gov. Savings
Investment Demand
Imports Exports
Foreign Savings
Transfers
Foreign Transfers
IFPRI Pakistan CGE Model
• Based on the 2007-2008 SAM of Pakistan (Dorosh et al., 2012). – 63 activities and 48 commodities – Special focus on agriculture (15 agric commodities) – Large, medium, and small farms
• Distinguishes 19 types of households and 10 types of labor
• Distinguishes Punjab, Sindh, and other provinces for agricultural sector
10
IBMR Water Model
CGE model
• Runs with economic policy options • Base-year water stress
Water demand
• Industrial and domestic water demand • Agricultural area (based on prices)
IBMR
• Optimizes the water distribution • Calculates water shortages
Water stress
• Calculates the impact of water stress on yields • Calculates the depletion of groundwater associated
CGE model
• The yield reduction (or increase) impacts the agricultural production • Calculates the new economic output
11
The Indus Basin Model Revised
12
CGE-W version of IBMR
• Standalone water model • Water model does not have any internal
representation of the economy – Links to CGE model for economic variables
• Objective is to minimize the agricultural water shortage across all Pakistan
13
CGE-W IBMR Overview
• Represents the 45 main canals, as well as the link canals between rivers
• Takes into account fresh and saline groundwater, as well as public and private tubewell pumping
• Can represent droughts and floods • Includes 16 representative crops • Takes into account industrial, domestic and
livestock water demand (assumed to be drawn from groundwater mostly)
14
Water Demand Module
CGE model
• Runs with economic policy options • Base-year water stress
Water demand
• Industrial and domestic water demand • Agricultural area (based on prices)
IBMR
• Optimizes the water distribution • Calculates water shortages
Water stress
• Calculates the impact of water stress on yields • Calculates the depletion of groundwater associated
CGE model
• The yield reduction (or increase) impacts the agricultural production • Calculates the new economic output
15
Water Demand Module • Computes agricultural cropped area based on
the CGE model results • The water demand is then computed using FAO
guidelines • Industrial and Livestock water demand are
proportional to the amount of activity in the sector
• Domestic water demand is proportional to household revenues
16
Water Stress Module
CGE model
• Runs with economic policy options • Base-year water stress
Water demand
• Industrial and domestic water demand • Agricultural area (based on prices)
IBMR
• Optimizes the water distribution • Calculates water shortages
Water stress
• Calculates the impact of water stress on yields • Calculates the depletion of groundwater associated
CGE model
• The yield reduction (or increase) impacts the agricultural production • Calculates the new economic output
17
Water Stress Module
• In case of water stress, the yield of crops is reduced using the FAO Ky approach (Doorenbos and Kassam, “Yield Response to Water”,1979)
• It is aggregated to the provincial level and to economically representative cropping activities
• The ratio of the current year yield to the base year yield is used to shock the production of crops in a second run of the CGE model
18
Linking the Models
CGE model
• Runs with economic policy options • Base-year water stress
Water demand
• Industrial and domestic water demand • Agricultural area (based on prices)
IBMR
• Optimizes the water distribution • Calculates water shortages
Water stress
• Calculates the impact of water stress on yields • Calculates the depletion of groundwater associated
CGE model
• The yield reduction (or increase) impacts the agricultural production • Calculates the new economic output
19
IFPRI Dynamic CGE-W Model
• Can be run dynamically over many years – Economic actors act based on the previous years and
have no forecast of the water situation • A full optimization version is being developed
– Economic actors have perfect knowledge of water conditions in the year to come and make decisions accordingly
• Can test different scenarios of economic and water policies for Pakistan
20
Illustrative Results
CGE model
• Runs with economic policy options • Base-year water stress
Water demand
• Industrial and domestic water demand • Agricultural area (based on prices)
IBMR
• Optimizes the water distribution • Calculates water shortages
Water stress
• Calculates the impact of water stress on yields • Calculates the depletion of groundwater associated
CGE model
• The yield reduction (or increase) impacts the agricultural production • Calculates the new economic output
21
Illustrative Results
• We run the dynamic model for 20 years (2005 to 2025) using “guesstimated” growth coefficients
• We run three different scenarios: one base year (with average flow), one dry year and one wet year
• We run these scenarios again with the presence of the Basha dam to see its impact on the economy (considering only irrigation benefits for now)
22
Impact on GDP
23
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2010 2015 2020 2025
drywetBbaseBdryBwet
Irrigated Wheat Production in Sindh
24
-15.00-10.00
-5.000.005.00
10.0015.0020.0025.0030.0035.00
2010 2015 2020 2025
drywetBbaseBdryBwet
Sugar Cane Production in Sindh
25
-25.00
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
2010 2015 2020 2025
drywetBbaseBdryBwet
Sindh Agricultural Production
-20-15-10
-505
10152025
2010 2015 2020 2025
drywetBbaseBdryBwet
Irrigated Wheat Production in Punjab
-10.00
-5.00
0.00
5.00
10.00
2010 2015 2020 2025
drywetBbaseBdryBwet
Basmati Production in Punjab
28
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
2010 2015 2020 2025
drywetBbaseBdryBwet
Punjab Agricultural Production
-10
-5
0
5
10
15
2010 2015 2020 2025
drywetBbaseBdryBwet
Illustrative Results: Conclusion
• Dry and wet years strongly impact GDP • Building the dam does have a significant impact
on agriculture: – Basha has a strong positive impact on rabi crops in
Sindh – It has a positive impact on kharif crops in both Sindh
and Punjab – It has a somewhat smaller impact on rabi crops in
Punjab
30
Future Work
• Define and run other policy experiments • Water model improvements
– representation of non-Indus basin water – representation of groundwater – representation of hydropower
• Consider effects of climate change – Increased frequency of extreme events: floods and
droughts – Impacts on infrastructure (roads, bridges, buildings)
31
Future Work Program
• Disseminate the model in Pakistan – UAF class in Faisalabad, Jan 28 – Feb 1, 2013 – Possible seminars in different institutions
• PSSP work program to develop collaborative research projects with institutions in Pakistan – Work program on water models, economywide
models, and linked models – Develop and update the Social Accounting Matrix
to get a better vision of the economy
32