A Sub-national CGE Model for the European Mediterranean Countries

This chapter describes the methodology used to develop a Computable General Equilibrium model with sub-national detail for the Euro-Mediterranean area: Italy, France, Spain, Portugal and Greece. The main purpose of this exercise is to perform economic assessments of climate change impacts with a finer spatial resolution compared to that offered by standard CGE models and, in doing so, to increase the comparability of and the possibility to exchange information across economic and physical impact models. Indeed, aiming to represent the high spatial heterogeneity of climate drivers and environmental impacts, both climate models and physical process models (like e.g. land use, crop growth, flood risk models) are spatially detailed. This is not the case for macroeconomic models that typically feature large geo-political blocks or at best the country as the finest investigation units. Accordingly, when physical and economic models are interfaced to produce integrated assessments of climate change impacts, there is an unavoidable loss of richness both of input and output information. Developing a sub-national resolution for the economic analysis thus offers a first useful step to measure more accurately the economic consequences of climate change, to produce an information more relevant for local planners and businesses, and also to better capture the economic feedbacks between regions which can turn to be as important as the international ones. The study addresses conceptual and practical issues related to the regionalization process, and presents simple experiments aimed to test the robustness of the regionalized structure and understand the economic implications in terms of market integration.