Dairy's role in sustaining New Zealand - Fonterra
Dairy's role in sustaining New Zealand - Fonterra
Dairy's role in sustaining New Zealand - Fonterra
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Appendix A CGE modell<strong>in</strong>g framework<br />
A.1 The MONASH-<strong>New</strong> <strong>Zealand</strong> CGE model: overview<br />
The MONASH-NZ dynamic CGE model conta<strong>in</strong>s <strong>in</strong>formation on 131 <strong>in</strong>dustries and 210<br />
commodities <strong>in</strong> its basic form. CGE modell<strong>in</strong>g is a highly-respected and well-developed<br />
technique that has a rich history for assess<strong>in</strong>g policy, regional and <strong>in</strong>dustry questions. Our<br />
model was developed <strong>in</strong> close collaboration with Monash University, a global leader <strong>in</strong><br />
build<strong>in</strong>g and apply<strong>in</strong>g CGE models. It captures the various <strong>in</strong>ter-l<strong>in</strong>kages between these<br />
sectors, as well as their l<strong>in</strong>ks to households (via the labour market), the government sector,<br />
capital markets and the global economy (via imports and exports). A visual representation is<br />
shown <strong>in</strong> Figure 10 highlight<strong>in</strong>g the complex and multidirectional relationships between the<br />
various parts of an economy.<br />
For this study we have calibrated the dairy <strong>in</strong>dustry <strong>in</strong> our database to match the aggregate<br />
dairy <strong>in</strong>dustry figures provided by <strong>Fonterra</strong> and Dairy NZ. More technical detail on the model<br />
is presented below.<br />
The model also <strong>in</strong>cludes a regional component. A ‘top-down’approach is used to<br />
decompose national impacts to the regional level, us<strong>in</strong>g regional employment data as<br />
weight<strong>in</strong>g. If a region has a high share of national output, then its regional <strong>in</strong>dustry output<br />
will be proportionally affected. The exception is <strong>in</strong>dustries that produce commodities<br />
(mostly services) that are largely consumed with<strong>in</strong> a region. These are deemed to be local<br />
<strong>in</strong>dustries, and it is assumed that their output moves <strong>in</strong> l<strong>in</strong>e with the local demand for the<br />
correspond<strong>in</strong>g commodity, rather than with the national <strong>in</strong>dustry output. F<strong>in</strong>al This report captures - 16 November 2010<br />
“regional multiplier”effects: spend<strong>in</strong>g with<strong>in</strong> a region specifically benefits services with that<br />
region (Horridge, 2008).<br />
Figure 10 Components of a CGE model<br />
Figure 10 Components of a CGE model<br />
Source: NZIER<br />
A.2 Dynamics of the MONASH-NZ model<br />
Dairy’s <strong>role</strong> <strong>in</strong> generat<strong>in</strong>g growth<br />
MONASH-NZ is a recursive dynamic CGE model based on the ORANI-NZ core. It<br />
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