PROJECT 2: MIRAGE MODEL WITH HOUSEHOLDS’ HETEROGENEITY IFPRI Team:
Project Duration: Objectives of project
Antoine Bouet, David Laborde, Betina Dimaranan, Carmen Estrades September 2009 – August 2012
Various international shocks are expected to have a substantial impact on poverty levels and inequality in developing countries (either positive or negative). In particular, major trade agreements, new massive domestic support programs in rich countries (agricultural policies, biofuels support programs for example) and increased volatility of world food prices could have substantial distributional effects in these countries. Therefore, it is important to develop a consistent and detailed modeling instrument that allows understanding how poverty between and within developing countries reacts to various shocks at the world level. This instrument has to be economically consistent, it has to tackle the economic mechanisms that lead to international transmission of major shocks and it has to provide a detailed representation of the characteristics of poverty within developing countries. Until now, multi-country multi-sector Computable General Equilibrium Models (like MIRAGE, but also Linkage at the World Bank and GTAP at Purdue University) are not well adapted to study distributional impacts of this kind of shocks as they only tackle how remunerations of primary factors are affected at the macroeconomic level, without taking into account the diversity of sources of revenues and consumption structure across individuals and households in developing countries. This project seeks to close this gap. Its objective is to develop a module of the MIRAGE model of the world economy with household heterogeneity.
Research Approach
A new version of the MIRAGE model has been developed and enriched with disaggregation of households in three countries: Uruguay, Pakistan, and Tanzania. In these countries, the model disaggregate the representative household into approximately 100 households by country, characterized by exogenous criteria like geographic place of residence, qualification and gender of the household‘s head, (private vs. public or agriculture vs. industry vs. services) and sector of activity so to represent the income distribution within the country. The sources of income and consumption structure reflect disaggregated statistical information coming from household surveys. Moreover, the new model better captures the behavior of the public agent in terms of revenues collected and in terms of expenditures.
This new version of MIRAGE will allow studying the impact of various policy shocks and identifying which households are expected to win, which households are expected to lose and why, while taking into account the reaction of households to these shocks. This will represent a considerable improvement of the MIRAGE model and in general to the existing world models.
Progress, Research Results, Major Research Findings in 2010
First results show that: (i) behind the average impact of a trade shock at the national level, there is much diversity in terms of impact at the individual level; (ii) divergences in gains and losses come mainly from the factor prices‘ channel and less from the consumption structure channel; (iii) how transfers of households are indexed is of great importance.
Plans for 2011
This version of MIRAGE is dynamic and models the long term evolution of the various strata of households. The work in 2011 will focus on introducing endogenous changes in the composition of strata, like rural/urban migration thanks to an augmentation of the non agricultural/agricultural unskilled labor of endogenous modification of the split of active population between skilled and unskilled labor. We will also implement endogenous inter-household transfers in order to understand to what extent these transfers may mitigate external shocks for certain categories of households.
2010 Internal Program Review-Markets, Trade and Institutions Division
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