This paper examines the economy wide effect of Ethiopian renaissance dam on Ethiopian economy. The model is based on an updated Social Accounting Matrix for 2014/15 that takes into account the structural changes in the economy. Given the additional electricity generation capacity of Ethiopia, the model run a policy simulation in which the additional 6000MW that
scheduled to come online near the future form renaissance dam. To analysis this policy option this paper outlined a recursive dynamic computable general equilibrium approach and hence uses the change in real GDP, sectors production, investment, external sector, household income and consumption expenditures, and household’s welfare relative to the baseline, as an indicators of the economic wide effects of the renaissance dam. In opting for policy shock, the results of exercise showed that with an increment in power supply from renaissance dam the country can optimize the beneficial impacts on its economy. Specifically the simulation results show a spreading out effect in real GDP, sectors production, real investment, household income and household’s consumption expenditure. Results also showed improvement in the welfare for all the household categories. However; the shift in relative income across the household categories favors high income households. Overall, this paper suggests that Ethiopian economy will enjoy the largest improvement with additional power supply resulting from Ethiopian renaissance dam, therefore; concerned bodies should exerted maximum efforts to finalize the projects on time and resolve the age-long problems of the people so that the economy maintains its tremendous progress.
Table of Contents
Introduction
Methodology
Source of Data
Social accounting matrix
Model formulation
Discussion and analysis
Policy Simulation Results
Recommendation
Research Objectives and Themes
This study aims to evaluate the economy-wide impacts of the Grand Ethiopian Renaissance Dam (GERD) on the Ethiopian economy. By utilizing a dynamic computable general equilibrium (CGE) model and an updated Social Accounting Matrix, the research seeks to quantify how increased electricity supply influences macroeconomic performance, sectoral production, factor income, and household welfare.
- Analysis of macroeconomic variables including GDP, investment, and trade volumes.
- Evaluation of sectoral production changes due to improved energy capacity.
- Investigation of functional income distribution and factor returns.
- Assessment of household welfare effects across different income and geographical categories.
Excerpt from the Book
Impact on real output by sector
Macroeconomic effects that we have seen before, however; represent aggregate impacts. We further need to investigate these effects on different activities of the economy. The impacts of Ethiopian renaissance dam on the output of various sectors have shown in figure 2 below. As can be seen, the impacts of additional power supply from renaissance dam on various sectors are different. The impacts of Ethiopian renaissance dam on real output are fairly positive for almost all the sectors because the construction of Ethiopian renaissance dam benefits all sectors through a reduction in margin costs.
The immediate impact of the construction of Ethiopian renaissance dam is therefore; a significant expansion in output of electricity sector itself. This output expansion in electricity therefore; results in a higher demand for intermediate inputs thereby creating a spillover effect to the rest of the economy (i.e. as other sectors also increase their production to meet higher demand of their products). As a result, employment and returns to factors of production increases as well. Consequently, this higher in return to factors creates a snowball effect, as greater profitability in the electric sectors attract further investments. This is true especially for the sectors which have the strongest forward linkages with electricity. Thus, from our exercise one can ardently conclude that almost all sectors increase production relative to the baseline scenario due to the fact that the reduction in margin costs contributes to the reduction in the cost of production in post shock periods.
Summary of Chapters
Introduction: This chapter highlights the critical role of the electricity industry in economic development and provides the context for the construction of the Grand Ethiopian Renaissance Dam as a means to address energy shortfalls.
Methodology: This section details the dynamic CGE modeling framework and the use of the 2014/15 Social Accounting Matrix to simulate the economic effects of the dam's additional power generation.
Source of Data: Explains that the primary data for the study was obtained from the 2014/15 Social Accounting Matrix of Ethiopia via IFPRI.
Social accounting matrix: Describes the structure and function of the SAM as an analytical framework for capturing economic flows and interdependencies between sectors and institutions.
Model formulation: Outlines the mathematical and theoretical basis of the recursive dynamic computable general equilibrium model used for the simulation.
Discussion and analysis: Presents the findings regarding macroeconomic impacts, sectoral production, factor returns, and household welfare changes resulting from the dam's operation.
Policy Simulation Results: Analyzes the specific simulation outcomes for GDP, trade, investment, and household consumption relative to the baseline scenario.
Recommendation: Provides policy suggestions based on the research findings, emphasizing the need for infrastructure development and further holistic studies.
Keywords
Dynamic Computable general equilibrium, GAMS, electricity supply, Ethiopian Renaissance Dam, real GDP, household welfare, factor income, sectoral production, economic growth, energy policy, capital returns, trade balance, social accounting matrix.
Frequently Asked Questions
What is the core purpose of this research paper?
The paper examines the economy-wide impact of the Grand Ethiopian Renaissance Dam (GERD) on Ethiopia, specifically analyzing how its additional electricity generation capacity influences the country's economic development.
What are the primary themes covered in the study?
The study focuses on macroeconomic indicators (GDP, investment, trade), sectoral productivity, distribution of factor income, and the subsequent impacts on household welfare and consumption.
What is the main objective or research question?
The primary goal is to determine if the construction of the dam contributes to economic growth and to understand its effects on factor income, household consumption, and export/import volumes.
Which scientific methodology is employed?
The research uses a recursive dynamic Computable General Equilibrium (CGE) modeling framework based on an updated 2014/15 Social Accounting Matrix.
What topics are discussed in the main body?
The main body covers the theoretical framework, data sources, simulation design, and a detailed analysis of how electricity supply shocks propagate through the economy, affecting different sectors and household categories.
What keywords characterize this work?
Key terms include Dynamic Computable General Equilibrium, GAMS, electricity supply, and Ethiopian Renaissance Dam.
How does the dam specifically affect household income?
The dam increases factor income, which in turn raises the nominal income of both poor and non-poor households; however, higher-income groups benefit disproportionately due to their higher shares of capital and skilled labor.
What are the implications for domestic production and exports?
While an appreciation of the real exchange rate initially reduces export competitiveness, the long-term effects show increased productivity and a shift in industrial structure toward high power-consuming sectors, ultimately benefiting real output.
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- Ashiber Tsegaye (Autor:in), 2019, Estimating the Economic Wide Effect of Ethiopian Renaissance Dam on Ethiopian Economy, München, GRIN Verlag, https://www.grin.com/document/537097
