Research Highlights

Chinese delegation visit CoPS

On 20 April 2007, CoPS hosted a Chinese delegation from Development Research Centre (DRC) of the State Council, National Development and Reform Commission, State Information Centre (SIC), and China Australia Governance Program of AUSAID. The delegation was headed by Mr ZHANG Xiaochong, Director General of the International Cooperation Centre of the National Development and Reform Commission. The purpose of the delegation's visit to Australia was to investigate the process of public policy enquiries and debate.

During a half-day workshop, Dr Yinhua MAI introduced modelling, policy consulting and training activities of CoPS. Professor Philip ADAMS presented "The Contribution of CGE Modelling in Public Policy Debate in Australia".

Professor LU Zhongyuan, Director General and Research Fellow of the Department of Macroeconomic Research of DRC, reflected on a similar role to CoPS that DRC plays in China's policy making process.

Mr ZHANG Xueying, Deputy Director-General of the Comprehensive Management Department of SIC, introduced activities of SIC.Mr Zhang expressed a sincere willingness to establish long-term cooperation with CoPS in CGE-model development and its policy applications.

CoPS goes to China

In September 2006, Peter Dixon, Yinhua Mai, Xiujian Peng, Maureen Rimmer and Charles Xiao presented a 7 day course on dynamic CGE modelling for forecasting and policy analysis at Hunan University. This followed a course presented earlier in the year by CoPS on static CGE modelling. The dynamic course was attended by about 30 people including staff and graduate students from Hunan and other universities and several public servants from Beijing. The course was built around the MC-HUGE (Monash-China Hunan University General Equilibrium) model. This is a 57 industry MONASH-style model of China constructed by Yinhua. During the course, Yinhua described her basecase forecast, generated by MC-HUGE, for the period 2006 to 2015. The forecasts imply continuing strong growth accompanied by rapid accumulation of foreign assets.

Participants in the course conducted and analysed several policy simulations concerned with the effects of: cuts in protection; changes in energy prices; productivity growth; and changes in business confidence concerning investment in China.

The course was hosted by Hunan University's Sino-Australia Centre of Economy and Policy Study and financed by Hunan University through a grant from the Chinese Ministry of Education.

At the culmination of the course, Hunan University honoured Peter Dixon by appointing him Guest Professor.

Following the course, the CoPS' team visited Beijing where they held discussions with officials from the State Information Centre on potential applications of CGE analysis in China. They also attended a round table workshop at Beijing University on model-based analysis of trade issues.

The keynote address was given by Peter Dixon with translations by Yinhua Mai.

CoPS analyses President Bush's energy policy

An important objective of the President's energy policy is to cut U.S. reliance on imported crude oil. The President is supporting research aimed at reducing the cost of biomass fuels (e.g. ethanol) so that these fuels are competitive with petroleum.

In June 2006, CoPS was commissioned by the U.S. Department of Commerce to estimate the benefits to the U.S. economy that would follow from technological breakthroughs that make ethanol competitive with petroleum when the price of crude oil is at its 2004 level.

Peter Dixon and Maureen Rimmer, together with Stefan Osborne of the U.S. Department of Commerce, analysed the issue using USAGE: a 500 sector dynamic CGE model of the U.S. economy developed over the last six years at CoPS in collaboration with the U.S. International Trade Commission.

They assumed that by 2020, 25% of crude oil is replaced by biomass products. Their analysis shows large benefits for the U.S. economy arising from four factors:

1. Costs-savings. In the Department of Energy benchmark out to 2020, adopted in USAGE, the price of crude oil increases sharply relative to the overall price level. By contrast, the USAGE benchmark price of biomass products declines relative to the overall price level, reflecting continuing rapid productivity growth in agriculture. If research makes ethanol competitive with petroleum at 2004 oil prices, then ethanol will be super-competitive at 2020 prices.
2. A reduction in the world price of crude oil. The United States accounts for about a quarter of world consumption of crude oil. The assumed substitution of biomass for crude oil has a noticeable damping effect on world demand for crude oil, generating a reduction in its price.
3. An increase in aggregate employment. Biomass substitution generates a strong long-run increase in agricultural employment. This will have the effect of keeping farmers in work who otherwise would have retired or would have worked their farms less intensively.
4. An increase in export prices. Biomass substitution means that the United States will have a smaller import bill - a reduced volume of crude oil imports at a reduced price. With a smaller import bill, the U.S. will need less exports to pay for its imports. Foreign demand curves for U.S. exports slope downwards, implying that foreigners will pay higher prices when U.S. supply contracts.