Regional Economic Modelling Newsletter

The first half of 2020 has been mostly characterised by the COVID-19 worldwide pandemic. The world economy, including the EU, is expected to shrink in 2020, although most analysts expect a quick recovery immediately afterwards.

The European Commission is working to ensure that the recovery will be sustainable, inclusive and fair for all Member States and has put forward a proposal for a major recovery plan, the so-called Next Generation EU. The RHOMOLO model has been used, among other instruments, to illustrate the importance of such plan through an economic analysis on the consequences of the COVID-19 crisis at the level of the NUTS 2 regions of the EU.

The RHOMOLO results have been included in the Staff Working Document (SWD(2020) 98 final) accompanying the proposal of Next Generation EU available here. A Policy Insight with the details of the analysis can be found here.

By going through this Newsletter, you will also find a summary of the rest of the activities carried out with the RHOMOLO model, most notably related to the publication of a number of journal articles, technical reports, and policy briefs.

The RHOMOLO webtool is available here.

RHOMOLO simulations' results aimed at quantifying the impact of the COVID-19 crisis at the level of the NUTS 2 regions of the EU have been used for the proposal of the new recovery plan labelled Next Generation EU.

The map with the results obtained with RHOMOLO can be found in the Staff Working Document accompanying the proposal (SWD(2020) 98 final) available here.

More details on the analysis can be found in this Policy Insight.

The European Commission presented on May 27th a proposal for a rescue and recovery plan at the European Parliament in response to the COVID-19 crisis. The analysis reported in this Policy Insight is based on the RHOMOLO economic model and has been used to support the Commission proposal.

The response to symmetric perturbations is uneven across regions. The GDP impact is on average -12.15%, with a standard deviation of 4.25, implying a fair variation of results across the EU regions. The results of the scenario accounting for the policy responses show that in most of the EU the policy reaction only partially alleviates the adverse effects of the crisis (the average unweighted impact being -7.43%). This is particularly true in the peripheral countries of the EU such as Spain, Italy, and Greece. Given the lack of fiscal space in these countries, this result calls for a strong and coordinated response at the EU level, as well as for an enhanced Cohesion policy for the next multiannual financial framework.

This Report studies the vulnerability, resistance, and recoverability of regions and identifies key regional features affecting the ability of regions to withstand to and recover from unexpected external shocks. The analysis reveals that the response of regions varies according to the nature of the external disturbance and to the pre-shock regional characteristics. Finally, it seems that resilience also depends on factors' mobility.

The full Technical Report can be found here.

The analysis deals in particular with the spillover effects arising from the policy intervention resulting from indirect trade effects and other inter-regional interdependencies and interactions. Cohesion policy has a positive long-run impact on the Polish economy, lasting years after the end of the programmes.

This text is part of a publication by the Polish Agency for Enterprise Development (PARP) entitled The Use of Econometric Modelling in Evaluating the Impact of Public Policies and Programmes (available here).

The full Technical Report can be found here.

Estimates using European data for the years 2000-2017 reveals steeper country level wage curves and higher NAWRUs than those estimated using regional data.

The full Technical Report can be found here.

The RHOMOLO model is used to gauge empirically the general equilibrium effects implied by the Smart Specialisation logic of intervention as foreseen by the policy makers designing and implementing the European Cohesion policy.

More specifically, the analysis shows the potential macroeconomic effects of achieving the R&D personnel targets planned by a set of Southern European regions. The Report also contains a discussion of the implications of the proposed methodology for future assessments of Smart Specialisation.

The full Technical Report can be found here.

This Policy Insight builds on the work done by the European Commission in support of an Innovation Agenda for the Western Balkans. It contains an Input-Output multiplier analysis focused on the economic sectors which have been found to be either current or emerging strenghts of the economy of North Macedonia.

Over the 2014-2022 programming period, the European Union has destined €664 million to North Macedonia under the Instrument for Pre-accession Assistance (IPA) program.

RHOMOLO has been used to illustrate the effect of a permanent demand‐side shock in the perturbed regions and the associated spillover effects in the non‐perturbed regions in the EU regional economies.

The analysis explores to what extent gradual upward pressure on wages generated by a domestic increase in demand alters the magnitude of the economic impacts in the long‐run and the degree to which this could result in changes in trade patterns. The study also investigates the impact of varying trade substitution elasticities and having either perfectly or imperfectly competitive product markets.

The article is freely available for download here. The full reference is the following: Lecca, P., Christensen, M., Conte, A., Mandras, G., and Salotti, S. (2020). Upward pressure on wages and the interregional trade spillover effects under demand-side shocks. Papers in Regional Science 99(1), 165-182.

This Insight illustrates the main assumptions behind the construction of the dataset and its core characteristics. The estimates take into account both the time needed and the distance covered by a representative truck travelling along optimal routes between samples of points within the EU regions (for more details see Persyn et al., 2019 and the version of the paper forthcoming on Transport Policy).

The resulting dataset (available here) contains an origin-destination cost matrix in euros at the region pair level. Moreover, the sampling approach allows calculating average (both arithmetic and harmonic) transport costs within each region.

This article illustrates the methodology used for the impact assessment of EFSI carried out with the RHOMOLO-EIB model and reports the result of the latest set of simulations, corresponding to the portfolio of all approved EFSI-supported operations as of June 13th, 2019. The estimates suggest that, by 2019, more than 1 million jobs are expected to be created thanks to the approved operations (1.7 million by 2022), with a positive contribution to GDP of 0.9% (1.8% expected by 2022) over the baseline.

The article is freely available for download here. The full reference is the following: Christensen, M., Weiers, G., and Wolski, M. (2019). The 2019 assessment of the macroeconomic effects of the European Fund for Strategic Investments with the RHOMOLO-EIB model. Investigaciones Regionales - Journal of Regional Research 2019/3(45), 5-15.