Macroeconomic and Welfare Effects of Energy Policies in Saudi Arabia: the MEGIR-SA Model

2017-05-09, by Frédéric Gonand, from King Abdullah Petroleum Studies and Research Center (KAPSARC), Saudi Arabia

MEGIR – Model with Energy, Growth and Intergenerational Redistribution – investigates the long-run implications for growth and equity across generations of different energy policies. It is the first general equilibrium model with overlapping generations to be developed and applied for energy policy analysis in the Arabian Peninsula. The version presented here is parameterized on Saudi data. It is a new and thoroughly revised version of the model developed for western countries by Gonand and Jouvet (2015). It is designed specifically for the economies of the Gulf Cooperation Council (GCC) states, particularly insofar as it incorporates an oil-exporting sector and public finances benefiting massively and directly from oil exports.

Executive Summary:

MEGIR – Model with Energy, Growth and Intergenerational Redistribution – investigates the long-run implications for growth and equity across generations of different energy policies. It is the first general equilibrium model with overlapping generations to be developed and applied for energy policy analysis in the Arabian Peninsula. The version presented here is parameterized on Saudi data. It is a new and thoroughly revised version of the model developed for western countries by Gonand and Jouvet (2015). It is designed specifically for the economies of the Gulf Cooperation Council (GCC) states, particularly insofar as it incorporates an oil-exporting sector and public nuances benefiting massively and directly from oil exports.

Its range of applications goes from modeling the impact on growth and intergenerational equity of higher energy efficiency, to the assessment of the effects of different potential fuel mixes and/or end- use energy prices on long-term growth and welfare distribution by age cohort. The MEGIR-SA model is also well suited to being adapted to include a sovereign wealth fund or for other oil exporting countries. The main advantage of MEGIR-SA is its ability to analyze precisely and simultaneously the effect of energy policies on potential growth and on intergenerational equity. This has some unavoidable cost in terms of modeling other aspects of the economy – e.g., the modeling of the supply side is more simplified than in models incorporating input- output matrix.

This paper provides the detailed technical description of the model that is used in other, companion, policy-oriented, KAPSARC papers. It also gives the characteristics of the baseline, no-reform scenario for the Kingdom of Saudi Arabia (KSA) as assessed by MEGIR-SA.

This paper has been granted authorization to use and reproduce by the King Abdullah Petroleum Studies and Research Center (KAPSARC). For academic purposes only.

Copyright © 2016 King Abdullah Petroleum Studies and Research Center (KAPSARC). All rights reserved.

https://www.kapsarc.org/wp-content/uploads/2016/10/KS-1656-MP050A-Macroeconomic-and-Welfare-Effects-of-Energy-Policies-in-the-GCC-Introducing-the-MEGIR-SA-Model.pdf