Mobile labour and capital in integration zone

This new option has been developed in order to better analyse the role of integrated markets in subnational areas, and more particularly to test CGE effects of Lisbon agenda in MIRAGE. This option is however not yet integrated in the core version of the model but constitutes

It is possible with this optional feature to define for a group of regional level of aggregation. This level being defined, it is then possible to consider on of the three following factor markets as integrated at this level:

  • Skilled labour
  • Unskilled labour
  • Capital

When a market is integrated, price is homogeneous in the integrated zone and factor is perfectly mobile in all the area.

Integrated labour market

For the skilled labour market, a standard integrated market is considered.

The unskilled labour market can be activated only in the perfect market mode or dual market mode with CET specification. In the dual mode, the CET rigidity is taken in consideration at the level of the integrated zones. Labour is then perfectly mobile inside each segmented market, with a unique price.

The average growth rate in the baseline is computed for the zone at the country/region level, which means that workers moving abroad are considered adopting the growth rate of the country in which they live.

Integrated capital market

Capital in MIRAGE is differentiated by sectors to reflect imperfect allocation. Investments are defined through a specific investment function (see section Capital and investment dynamics (Outdated)).

When a region is considered as integrated, investment is then made perfectly mobile between regions for each sector but are still considered rigid from one sector to another. As a consequence, sectoral return on investment is the same throughout countries of the integrated area but not across sectors.

Investments controlled by the investment function inside a sector and a region of the integration zone are then completed by a reallocation of capital reflecting the mobility and equalling return rates. Foreign investments follow the same pattern as in the standard version, except that investment destination is the whole integrated zone and not zones separately.

This option can be activated only if the sets.gms incorporates a block Integrated market settings (l.22 of the file).

It is possible to define several integrated zone. This should be made in the set by:

  1. Adding the name of the region in the set Int_r.
    For example:
     Set Int_r 	Definition of integrated market /
  2. Defining the mapping for the regional aggregation.
     Set Map_Int_r(Int_r,r)	Regions in integration zone;
    Note that the regional aggregate for EU27 is constructed by default thanks to the line:
     ! European Union mapping
  3. At the end of the sets.gms file, three empty sets can be filled with names of integration zone in order to choose the modelling of an integrated market.
     Kmob(Int_r)		Perfect mobility of capital within sectors across countries /
     Lmob(Int_r)	 	Perfect mobility of unskilled labour across countries /
     Hmob(Int_r) 		Perfect mobility of skilled labour across countries /
     / ;
  4. Run beginning by Calib.gms…