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Country-Wide Water-Economy Links: An Integrated Modeling Approach with Application to Pakistan By Arthur Gueneau, IFPRI
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Country-Wide Water-Economy Links: An Integrated Modeling Approach with Application to Pakistan By Arthur Gueneau, IFPRI

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Presentations made at the PSSP First Annual Conference - December 13, 14, 2012 - Planning Commission, Islamabad, Pakistan

Presentations made at the PSSP First Annual Conference - December 13, 14, 2012 - Planning Commission, Islamabad, Pakistan


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  • 1. Modeling Economywide Impacts of Water Policies in Pakistan Sherman Robinson and Arthur GueneauInternational Food Policy Research Institute (IFPRI) December 14, 2012 - Islamabad
  • 2. 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
  • 3. 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
  • 4. 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
  • 5. IFPRI Dynamic CGE-W Model • Runs with economic policy optionsCGE model • Base-year water stress • Industrial and domestic water demand Water demand • Agricultural area (based on prices) • Optimizes the water distribution IBMR • Calculates water shortages • Calculates the impact of water stress on yieldsWater stress • Calculates the depletion of groundwater associated • The yield reduction (or increase) impacts the agricultural productionCGE model • Calculates the new economic output 5
  • 6. 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
  • 7. Computable General Equilibrium • Runs with economic policy optionsCGE model • Base-year water stress • Industrial and domestic water demand Water demand • Agricultural area (based on prices) • Optimizes the water distribution IBMR • Calculates water shortages • Calculates the impact of water stress on yieldsWater stress • Calculates the depletion of groundwater associated • The yield reduction (or increase) impacts the agricultural productionCGE model • Calculates the new economic output 7
  • 8. 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 Factor Domestic Private Savings Factor Markets Wages Costs & Rents Gov. Savings Taxes Intermediate Input Cost Households Government Sav./Inv.Activities Transfers Private Government Investment Consumption Consumption Demand Commodity Sales Markets Exports Imports Foreign Transfers Rest of the Foreign Savings World 9
  • 10. 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
  • 11. IBMR Water Model • Runs with economic policy optionsCGE model • Base-year water stress • Industrial and domestic water demand Water demand • Agricultural area (based on prices) • Optimizes the water distribution IBMR • Calculates water shortages • Calculates the impact of water stress on yieldsWater stress • Calculates the depletion of groundwater associated • The yield reduction (or increase) impacts the agricultural productionCGE model • Calculates the new economic output 11
  • 12. The Indus Basin Model Revised 12
  • 13. 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
  • 14. 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
  • 15. Water Demand Module • Runs with economic policy optionsCGE model • Base-year water stress • Industrial and domestic water demand Water demand • Agricultural area (based on prices) • Optimizes the water distribution IBMR • Calculates water shortages • Calculates the impact of water stress on yieldsWater stress • Calculates the depletion of groundwater associated • The yield reduction (or increase) impacts the agricultural productionCGE model • Calculates the new economic output 15
  • 16. 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
  • 17. Water Stress Module • Runs with economic policy optionsCGE model • Base-year water stress • Industrial and domestic water demand Water demand • Agricultural area (based on prices) • Optimizes the water distribution IBMR • Calculates water shortages • Calculates the impact of water stress on yieldsWater stress • Calculates the depletion of groundwater associated • The yield reduction (or increase) impacts the agricultural productionCGE model • Calculates the new economic output 17
  • 18. 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
  • 19. Linking the Models • Runs with economic policy optionsCGE model • Base-year water stress • Industrial and domestic water demand Water demand • Agricultural area (based on prices) • Optimizes the water distribution IBMR • Calculates water shortages • Calculates the impact of water stress on yieldsWater stress • Calculates the depletion of groundwater associated • The yield reduction (or increase) impacts the agricultural productionCGE model • Calculates the new economic output 19
  • 20. 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
  • 21. Illustrative Results • Runs with economic policy optionsCGE model • Base-year water stress • Industrial and domestic water demand Water demand • Agricultural area (based on prices) • Optimizes the water distribution IBMR • Calculates water shortages • Calculates the impact of water stress on yieldsWater stress • Calculates the depletion of groundwater associated • The yield reduction (or increase) impacts the agricultural productionCGE model • Calculates the new economic output 21
  • 22. 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
  • 23. Impact on GDP1.501.00 dry0.50 wet0.00 Bbase 2010 2015 2020 2025 Bdry-0.50 Bwet-1.00-1.50 23
  • 24. Irrigated Wheat Production in Sindh 35.00 30.00 25.00 20.00 dry 15.00 wet 10.00 Bbase 5.00 Bdry 0.00 Bwet -5.00 2010 2015 2020 2025-10.00-15.00 24
  • 25. Sugar Cane Production in Sindh15.0010.00 5.00 dry 0.00 wet -5.00 2010 2015 2020 2025 Bbase-10.00 Bdry-15.00 Bwet-20.00-25.00 25
  • 26. Sindh Agricultural Production 25 20 15 dry 10 wet 5 Bbase 0 Bdry -5 2010 2015 2020 2025 Bwet-10-15-20
  • 27. Irrigated Wheat Production in Punjab10.00 5.00 dry wet 0.00 Bbase 2010 2015 2020 2025 Bdry -5.00 Bwet-10.00
  • 28. Basmati Production in Punjab20.0015.00 dry10.00 wet 5.00 Bbase Bdry 0.00 Bwet 2010 2015 2020 2025 -5.00-10.00 28
  • 29. Punjab Agricultural Production1510 dry 5 wet Bbase 0 Bdry 2010 2015 2020 2025 Bwet -5-10
  • 30. 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
  • 31. 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
  • 32. 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