RAEM-Europe: a Dynamic SCGE Model for EU-27, Which Combines Representation of Inter-regional Trade and Transport Flows



RAEM-Europe: a Dynamic SCGE Model for EU-27, Which Combines Representation of Inter-regional Trade and Transport Flows

Authors

O Ivanova, T Bulavskaya, L Tavasszy, J van Meijeren, TNO, NL

Description

This paper describes the structure and first application of a dynamic regional-economic model for EU-27 called RAEM-Europe.RAEM-Europe represents European economy at the level of NUTS2 regions in a New Economic Geography (NEG) framework.

Abstract

This paper describes the structure and first application of a dynamic regional-economic model for EU-27 called RAEM-Europe. The model has been developed in an internal project of TNO and is an extension of our regional-economic model for the Netherlands. RAEM-Europe represents European economy at the level of NUTS2 regions in a New Economic Geography (NEG) framework.
RAEM-Europe takes into account location decisions of people and firms and links the European regions with capital and trade flows. The model is dynamic and allows calculating the effects of policy changes until the year 2050. This is a unique feature of the model and represents a clear advantage for CBA analysis of large infrastructure projects. Based on the simulation with the model one can compute both ENPV and ERR for each investment project which allows policy makes to make an educated choice between different investment options.
The modeling of interregional trade flows is also influenced by data availability. The only data available at EU-wide level is the data on the total origin-destination flow of commodities between the regions by type of commodity. There is no information about the trade between the regions in services. There is also no information about differences in the geographical mix of the commodities bought by different sectors and households in the region.
The model has the following five main spatial effects can be distinguished from the model: 1. The market-access effect. 2. The variety effect. 3. The cost of living effect. 4. The market-crowding effect. 5. Housing-effect. While the first three effects are agglomeration forces, as they encourage agglomeration in the model, the last two effects are dispersion forces.
The model has rather detailed sectoral dimension (59 NACE sectors) and elaborated modeling of production technology. An interesting feature of RAEM-Europe is that it integrates the representation of trade and transportation flows for 30 groups of commodities.
We use RAEM-Europe is order to evaluate the spatial and economic effects of future European Cohesion Policy (ECP) investments into transport infrastructure in the programming period 2014-2020.

Publisher

Association for European Transport