Modeling Impacts of Economic Shocks: New FSP E-Learning Course Launched

The Food Security Portal E-learning Platform has launched its newest course, Partial Equilibrium Models. The course provides an introduction to these powerful models and how to use them to forecast the impact of economic shocks and policies on national and global economic environments.

Antoine Bouet, the course’s instructor and IFPRI Senior Research Fellow, emphasizes several important advantages to be gained from using partial equilibrium (PE) models. First, these models are flexible and simple to design and use. Because they do not take into account factors of production (labor, capital, land, etc.), they have less onerous data requirements than other modeling structures. This makes it possible to model a sector of the economy or policy more easily and in more detail.

“For example, in international trade, one can model a tariff quota quite simply with this type of model,” Bouet explains. “Including a tariff quota in a general equilibrium model is more complicated because there are two possibilities: either the quota is filled, or it is not. This type of discontinuity is difficult to include in a general equilibrium model.”

PE models’ simplicity also makes it easier for researchers to interpret and communicate their forecasted effects. This can be a particularly important advantage for economists who are new to designing and explaining ex-ante models.

Bouet and IFPRI Senior Research Fellow David Laborde have used PE models in recent years to conduct research into the global oilseed value chain. They looked specifically at the relationship between the main production stages along this chain (soybean cultivation and soybean crushing to obtain meal for animal feed and vegetable oil for human consumption or biodiesel use) in both major producing and major importing countries and to forecast the impact of policy developments in these stages on international trade.  

“With such a model, we were able to assess in detail the economic and trade effects of policies such as tariff escalation along the value chain in importing countries,” Bouet said. “These policies have a complicated impact on world prices and trade flows. This model allowed us to estimate in detail the effects of these policies, but also those of a partial or complete removal of these measures.”

Of course, partial equilibrium models are not appropriate for all needs. As noted, PE models do not account for all market factors, such as labor, capital, or land markets. In addition, they do not take into account the impact of shocks on government revenues or public sector spending. These limitations mean that PE models are less useful when examining large sectors of an economic environment.

The new FSP e-learning course is composed of four units introducing students to the principles of PE models, as well as the structure and challenges involved in GAMS programs. Students will begin with a simple, six-equation model focusing on a national market with imports in a small country. They will then build upon this introduction to examine more complex models that include large countries, substitute or complementary goods in consumption, value chains, and global markets. At the end of the course, students will receive a certificate of completion (upon passing a final exam).

Students should have experience with GAMS programs in order to successfully complete this course; GAMS training is offered through the AGRODEP GAMS Training Toolbox.

The FSP E-learning Platform will launching several additional courses in the coming year. These include further courses instructed by Bouet on introductory general equilibrium models and advanced general equilibrium models. These will provide, respectively, the basic principles and a simple example of a general equilibrium model and more advanced examples that take into account public administration, household savings, and investment by firms. The Platform will also be launching as a French-language version of the existing course on the pro-WEAI (Women’s Empowerment in Agriculture Index). This course introduces researchers to the background and practical applications of the pro-WEAI, which is the first standardized instrument to measure women’s empowerment and inclusion in the agricultural sector at the project level. An additional course will introducing the Farmer Business School Course, a learning model aimed at improving farmers’ business knowledge and strengthening farmer organizations.

The FSP  E-learning Platform is an open access platform. It includes both courses designed specifically for the FSP and a listing of external training resources and courses for economists and food security researchers and practitioners.