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  • A SCGE model For Estimating Economic  Impact Of Port Disruption

    A SCGE model For Estimating Economic  Impact Of Port Disruption

    Junho Choi,Junho Choi, Hirokazu Tatano, Hirokazu Tatano,

    Yuta Funase Yuta Funase and and

    Satoshi TsuchiyaSatoshi Tsuchiya 1

  • OutlineOutline

    • Backgrounds • Methods • Structure of models • Case study • Conclusion

    2

  • Back grounds(1) Why Ports & Harbors ?Back grounds(1) Why Ports & Harbors ?

    • Critical  Infrastructure – assets that are essential for the functioning of a society and  economy

    – e.g., electric power supply,  logistic networks, etc..

    • Global Critical  Infrastructure – Its malfunction causes international impacts in societies and  economies

    • Ports and Harbors – Occupy over 99% of flights share in global trade in weight of  cargo

    – Global trades are essential for many countries in a  globalized world, especially one of national key strategy in  eastern Asian countries

    • E.g. Shanghai, Pusan, etc.

    3

  • Backgrounds(2)Backgrounds(2)

    4

    Malfunction   of a port

    Stoppage of  exports  from the affected port

    Stoppage of  imports

    Alternation  of ports for  exports  Continuous 

    usage of the  alternative  port

    Increase  of  inland   transportation  costs

    Increase of  consumers  price

    Decrease   of  demand

    Decrease of  production

    Change in logistic  networks e.g. Port of Kobe

    Recovery  Investment 

    Demands in  Recovery   Activities

    What could occur if an international port is malfunctioned by a disaster? 

    Natural  Disaster

    4

    Increase  of  inland   transportation  costs

    Increase of  consumers  price

    Decrease   of  demand

    Decrease of  production

    Alternation  of ports for  imports 

    Increase in debt

  • Backgrounds(3)Backgrounds(3)

    • Question – Is an important port in a country really  global  critical infrastructure?

    – What type of impact to the domestic and other  countries market?

    5

    Huge? Small?

    For  Companies?

    For  Government?

    For  Consumers?

    For  Industries?

    Positive? Negative?

  • ObjectivesObjectives

    • Estimation of economic impact caused by  malfunction of  a harbor – Not only in the affected countries but also in other  countries which connected by  global trade networks

    – In different economic sectors, e.g., industries and  households.

    6

    Strategies for Disaster Risk Governance of  Global Critical Infrastructure

    6

  • MethodMethod

    • International trades are described by SCGE Model • Compare equilibriums between global economies with/without 

    disruption of a port  • Measure the economic impacts in industries and households in  

    each country 

    7

    International  SCGE model

    Before a disaster After a disaster

    Disaster

    comparison

    7

    International  SCGE model

  • Structure of the modelStructure of the model

    8

    Port  selectionPort selection

    Firm

    demand Transportation cost demand Transportation cost

    International Model(SCGE) & National Model

    Country B Country B

    County A

    trade

    Firm Household

    Country B

    International Model(SCGE)

    Firm Household

  • Structure of the modelStructure of the model

    9

    Country B Country B

    Country A

    trade

    Firm household

    Country B

    International Model(SCGE)

    International Model(SCGE)&National model

    Firm household

    9

  • International Model (SCGE)International Model (SCGE)

    • Trade occurs in N countries • International trades  are affected 

    by transportation costs • Armington assumption

    – Commodities produced in different  countries are treated  as different goods

    10

    Industries household

    Labor/ Capital  Market

    Labor/ Capital  Market

    Commodity  market

    Commodity  market

    Industries Household

    Commodity market

    Commodity market

    Labor/capital  market

    Labor/capital  market

    Country i

    Country j

    TradeNational Economy • Household

    – Represented by a single  household

    – Consumes  Commodities – Provides labor and capital

    • Firms – M industries – Supply products in domestic and 

    international markets 10

  • Description of behaviors Description of behaviors 

    • Profit Maximization • producing a good with Labor, capital 

    and intermediate goods

    11

    Product

    Value  added

    Intermediate  good 1

    Intermediate  good 2

    Labor Capital

    Leontief Function

    Cobb-Douglas Function

    • Consumption of goods are  determined to maximize its utility  under a constraint of income

    • Income of the household is obtained  by providing labor and capital to  industries

    Firms behavior Household behavior

    Utility

    Good3Good  1

    Good  2

    CES Function

    11

  • AssumptionsAssumptions • Price & transportation cost

    – Transportation cost is represented by Ice‐burg type TC that  some  part of the goods will be decreased like ice burgs.

    – Price relations 

    • Goods produced in the foreign counties – Stage one:in each industry, a composite foreign good is produced by 

    use of goods produced in the foreign countries. – Stage two:a composite good is produced by use of a domestic good 

    and the foreign composite good. • Labor……..is not mobile over counties but move in domestic labor 

    market • Capital……is mobile over domestic industries and countries 

    12

    )1( kli k i

    kl if

    pp τ+=

    Transportation Margin

    FOB Price

    CIF Price

    12

  • Treatment of foreign goods  in the modelTreatment of foreign goods  in the model

    1313

    Foreign countries

    Foreign countries

    Domestic Economy

    Household Intermediate good

    Firm in Country 1

    Firm in Country 2

    Firm

    Stage two composition sector(virtual)

    Stage one composition sector(virtual)

    Stage one composition sector(virtual)

    Firm in Country 1

    Firm in Country 2

  • Structure of the modelStructure of the model

    14

    Domestic  transportation

    firm

    price Trans. Cost price Trans. cost

    International model(SCGE)&Domestic model

    Country B Country B

    Country A

    trade

    Country B

    International SCGE Model 14

  • Domestic transportation modelDomestic transportation model

    15

    Country A

    Country B

    Country C

    • Alternative port will be used in the disaster affected country.

    • Inland transportation cost will be increase.

    • International shipping cost will also affected.

    l jlandτ

    'ljlandτ lk jseaτ

    'lkjseaτ

    15

    Port B

    Port A

  • Change in conditions for exports Change in conditions for exports 

    16

    P

    Q k aiQ

    r as−1

    Demand

    Marginal cost in ordinary transportation conditions

    quantity

    price Supply function

    k iothersQ

    'kip

    k ip

    ),( ki k i PQ

    )','( ki k i PQ

    k i

    k ai

    Q Loss

    k iQ

    k i

    k i PQ , :production and price

    of good i in ordinary condition

    ',' ki k i PQ

    k aiQ :shipping volume from

    port a :shipping volueme from other ports

    k iothersQ

    Marginal cost in transportation conditions with a malfunction of a port

    :production and price of good i after the disruption of port a

  • Equilibrium condition in disasterEquilibrium condition in disaster

    variable in disaster

    Exogenous Variables

    tariff fixed

    transportation cost Changed

    Endogenous Variables

    capital fixed / variable

    labor variable

    price(f.o.b) variable

    price(c.i.f) Variable

    17

    • A natural hazard is assumed to bring about disruption of function of a port,  and/or stoppage of usability of damaged sea lanes.

    • These causes changes of transportation cost within affected countries  and/or between countries.

    • Allocation of capital is assumed to be fixed at the level of the ordinary  condition in the short‐run equilibrium but variable in the long‐run  equilibrium.

    17

  • Ca