Production technology
Table of contents
G-Cubed sectors are aggregations of the 65 sectors defined in the GTAP database (See Aguiar et al. (2019) for details of the GTAP database). The specific mapping of GTAP sectors to G-Cubed sectors depends upon the G-Cubed model version.
Standard sectors
G-Cubed sectors are aggregations of the 65 sectors defined in the GTAP database (See Aguiar et al. (2019) for details of the GTAP database). The specific mapping of GTAP sectors to G-Cubed sectors depends upon the G-Cubed model version
As outlined in Jaumotte et al. (2021), there is a production function for each sector within each region. It is based upon nested Constant Elasticity of Substitution (CES) functions The nesting structure is illustrated in Figure 1.
Figure 1. Production function for standard sectors
Note that the elasticities of substitution for each CES aggregator, within each sector, are estimated using US data. These elasticities are assumed to be the same across regions but different across sectors. In other words, the degree of substitution across input in production is a sector are different across sectors but are the same for the same sector in different countries.
The parameters for input shares in the CES production function are taken from the input-output tables in the GTAP database.
Electricity production and distribution
Some G-Cubed models (e.g. 20C) provide detailed articulation of electricity production and distribution. Those models include two additional types of sectors: an electricity distribution sector and one or more electricity generation sectors. THe electricity generation sectors use the standard production technology, described above.
The electricity distribution sector has a different production technology that aggregates the electricity produced by electricity generation sectors and distributions that power through the economy. The only inputs to the electricity distribution sector are the electricity generated by the domestic electricity generation sectors. There is no capital or labor or other materials used in the sector. The aggregation of the electricity generated by the domestic electricity generation sectors is again done using a CES production function. Electricity is not simply summed across generation sources because electricity from different generation sources is not perfectly substitutable.
For models without this detailed articulation of electricity production and distribution, production for the electricity sector is treated as a standard sector, on its own or aggregated into a more broadly defined energy sector.
Figure 2. Production function for the electricity distribution sector
References
Aguiar, A., Chepeliev, M., Corong, E., McDougall, R., & van der Mensbrugghe, D. (2019). The GTAP Data Base: Version 10. Journal of Global Economic Analysis, 4(1), 1-27.
Jaumotte, F., Kim, W., McKibbin, W. J., J., Liu (2021), “Mitigating Climate Change: Growth-Friendly Policies to Achieve Net Zero Emissions by 2050”, IMF Working Paper No. 2021/195, International Monetary Fund.