1.
Modeling the Water-Food-Energy Nexus in the Arab
World : The Case of Egypt
ECONOMIC AND WELFARE IMPACTS: A SINGLE COUNTRY DYNAMIC COMPUTABL E GENERAL EQUILIBRIUM
(DCGE) MODEL
PERRIHAN AL-RIFFAI
IFPRI APRIL 18, 2016
CONRAD - CAIRO, EGYPT

2.
DCGE Model for the Water-Energy-Food Nexus
Source: Author’s adaptation of Hoff (2011) and von Braun (2015)

3.
DCGE Model for the Water-Energy-Food Nexus
Source: Author’s adaptation of Hoff (2011) and von Braun (2015)

4.
DCGE Model: Circular Flow of Income
Production
Payments
Taxes
Remittances
Foreign markets and
countries
Public sector or
government
Trade
AidRecurrent spending
Public investment
Foreign investment
Savings & private
investment
Industry
Sectoral & national
economic growth
Household incomes
& poverty
Agriculture
Services
Rural
Urban
Incomes
Consumption
Productivity/technology
Human/physical capital
Taxes & social grants
Taxes
Product markets
Factor markets

5.
DCGE Model: Circular Flow of Income
Impact of a negativeclimatechange shockor reducedwater availabilityon the economycaptured throughnegativelong term
cropyield changes
Production
Payments
Taxes
Remittances
Foreign markets and
countries
Public sector or
government
Trade
AidRecurrent spending
Public investment
Foreign investment
Savings & private
investment
Industry
Agriculture
Services
Rural
Urban
Incomes
Consumption
Productivity/technology
Human/physical capital
Taxes & social grants
Taxes
Product markets
(water)
Factor markets
(water)

6.
DCGE Model: Circular Flow of Income
Supply of food is impactedin the economy
Production
Payments
Taxes
Remittances
Foreign markets and
countries
Public sector or
government
Trade
AidRecurrent spending
Public investment
Foreign investment
Savings & private
investment
Industry
Agriculture
Services
Rural
Urban
Incomes
Consumption
Productivity/technology
Human/physical capital
Taxes & social grants
Taxes
Product markets
(water)
Factor markets
(water)

7.
DCGE Model: Circular Flow of Income
Throughthefactorandtheproductmarkets,households(especiallyruralhouseholds)areimpactedthemost
Production
Payments
Taxes
Remittances
Foreign markets and
countries
Public sector or
government
Trade
AidRecurrent spending
Public investment
Foreign investment
Savings & private
investment
Industry
Agriculture
Services
Rural
Urban
Incomes
Consumption
Productivity/technology
Human/physical capital
Taxes & social grants
Taxes
Product markets
(water)
Factor markets
(water)

8.
DCGE Model: Circular Flow of Income
Throughthefactorandtheproductmarkets,allhouseholdsareaffected
Production
Payments
Taxes
Remittances
Foreign markets and
countries
Public sector or
government
Trade
AidRecurrent spending
Public investment
Foreign investment
Savings & private
investment
Industry
Agriculture
Services
Rural
Urban
Incomes
Consumption
Productivity/technology
Human/physical capital
Taxes & social grants
Taxes
Product markets
(water)
Factor markets
(water)

9.
DCGE Model: Circular Flow of Income
As a resultofadversewelfareimpacts,thegovernmentmaydecidetointroducewelfareenhancingmeasures, eg,increasesocialgrantsand
transferstothevulnerable
Production
Payments
Taxes
Remittances
Foreign markets and
countries
Public sector or
government
Trade
AidRecurrent spending
Public investment
Foreign investment
Savings & private
investment
Industry
Agriculture
Services
Rural
Urban
Incomes
Consumption
Productivity/technology
Human/physical capital
Taxes & social grants
Taxes
Product markets
(water)
Factor markets
(water)

10.
• The CGE model produces results relative to the baseline
selected – helpful for comparison
• Macro-indicators (or regional): GDP, employment, fiscal
accounts, investment, trade, etc….
• Sectoral indicators: GDP/Value added, resources allocation,
crop production, investment decisions
• Welfare indicators: poverty, income, household spending,
inequality
DCGE Model Results

11.
Strengths
• Based on a general equilibrium (macro) economic principle that integrates micro
economic theory: Producers and households maximize profits and utility (respectively)
and produce the necessary behavioral equations (demand and supply) that govern the
behavior of the agents in the model.
• Ability to give welfare impacts: Shows the direct as well as the indirect impacts of an
exogenous shock on the whole economy and on poverty and inequality
• Ex-ante policy information: Gives the direction of a policy change/scenario before the
policy as information to policy makers
• Allows hybrid modeling: CGE models can link with other partial equilibrium models
(climate, water, and crop models) in order to optimize the benefits of using the
different types of models together in a coherent and comprehensive framework.

12.
Weaknesses
• In most cases elasticities are not computed for the country: Oftentimes and especially
for developing countries, elasticities are borrowed from the literature from countries
with similar profiles for use with the model if none exist for the country under study
• Black box: Oftentimes CGE models are seen as black boxes by other researchers
• CGE model results emphasize the direction of change rather than the magnitude of
the change: CGE models are not forecast models and so the impact of policy changes
over a time horizon are best seen as information on the impact of policy changes rather
than on the level ( or ) changes.

13.
Policy Application: 3 Country Case Study (Syria, Tunisia and
Yemen)
• What are the impacts of climate change on agricultural production,
especially crop yields?
• What are the impacts of climate change on agricultural growth, overall
GDP growth?
• What is the impact of climate change on (rural) incomes at the national
and sub national levels (AEZs)?
• What are potential policy and investment options to mitigate growth and
poverty effects of climate change?

14.
Results: Households & Welfare
Syria
Yemen
Global CC Syria
Yemen
Local CC
Combined CC
Syria
Yemen

15.
• Climate change: Temperature increases and available rainfall
(where relevant) from downscaled GCMs
• Water supply and allocation: Water availability for all sectors in
the economy
• Crop yields: The impact on crop yields of climate risk and water
availability scenarios
Ways Forward: Data Needs for the DCGE Model

16.
THANK YOU