A new way to estimate the economic impacts of regulation in CANADA
Envelope Economics has developed the Canadian Labour-restricted Input-Output Model (CLIO ModelTM) to investigate how shocks in one industry affect the broader economy.
The CLIO ModelTM can measure how a regulatory change, technological change or price shock in one industry will affect revenues, GDP, wages and profits and the labour distribution across all of Canada’s 230 industries.
The model is based on Statistics Canada’s supply-and-use tables and labour data. It takes advantage of over 50,000 data points that describe Canada’s interindustry, trade and consumption network-linkages.
The CLIO ModelTM is based on theoretical research from world-renowned economists such as Charles Jones and Daron Acemoglu, who have investigated how distortions affect economic networks. Technically speaking, the CLIO ModelTM is a neoclassical closure, CGE model that may be used to estimate long-run economic impacts.
Advantages of the CLIO ModelTM
The model has a vast array of advantages over the typical input-output multipliers available through Statistics Canada.
- The CLIO model may estimate the impact of any number of regulations, government programs, innovations or “technology impacts” on both the industry and entire economy.
- The results from the CLIO Model are much more realistic in the long-term than a traditional IO model, because it assumes that Canada’s labour supply is fixed. Input-output models assume unlimited availabel resources.
- The economic impacts measured are more complex and non-linear. They are dynamic impacts that take into account how businesses across the economy will adapt.
- The model balances trade based on their use as intermediate inputs and final goods.
Specific applications of the CLIO ModelTM
- Regulatory changes: Regulations change what business may use in production or require them to divert employees to regulatory compliance measures.
- New technology approvals: Government may approve/withdraw different production technologies that change business behaviour.
- Industry specific programs: Government often provide incentives/disincentives to specific industries that will change their use of different inputs (e.g. a fuel tax or a new investment incentive).
- Long-term impacts of R&D and productivity: The model can estimate the impacts of continued productivity improvements on the economy.
- Terms of trade shocks: For example, a loosening of import regulations in the U.S. for a specific industry.
For a detailed explanation of the CLIO ModelTM, please see this presentation.
If you are interested in learning more about the CLIO ModelTM, please Contact Me.
A sample analysis with results is included below.
What would happen to the Canadian economy, if Canada’s farmers did not have access to genetically-modified varieties of crops or crop protection products?
Model assumptions and inputs
- Fixed employment across supply chains
- A fixed amount of total labour supplied by Canadian workers
- Perfectly complementary inputs
- A 27% reduction in agricultural chemical use (assuming that fertilizer use remains the same)
- A 23% decrease in total factor productivity in Canada’s crop production industry, assuming that TFP returns to 1996 levels – the year prior to the commercialization of many GM plant varieties in Canada.
- A 22% increase in fuel use, as farmers are no longer able to use no-till and conservation till methods.
|Industry||Estimated change in value added (000s of dollars at market prices)||Change in industry revenues||Change in industry productivity per FTE||Change in empolyment|
|Crop production (except greenhouse, nursery and floriculture production)||-$385,910||-$3,333,464||-$21,617||21,926|
|Pesticide, fertilizer and other agricultural chemical manufacturing||-$378,424||-$1,025,214||$0||-1,206|
|Animal production (except aquaculture)||-$125,636||-$497,536||$0||-2,562|
|Grain and oilseed milling||-$115,063||-$670,897||$0||-417|
|Electric power generation, transmission and distribution||-$77,020||-$107,936||$0||-203|
|Meat product manufacturing||-$75,399||-$375,889||$0||-768|
|Banking and other depository credit intermediation||-$74,039||-$96,793||$0||-410|
|Basic chemical manufacturing||-$59,083||-$189,383||$0||-137|
|Food services and drinking places||-$58,727||-$129,273||$0||-1,499|