Multi-Objective Optimization of International Economies Via Multi-Regional Input-Output Analysis: Application to the US Economy

 

Multi-objective optimization of international economies via multi-regional input-output analysis: Application to the US economy

J. Pascual-González^a, G. Guillén-Gosálbez^a[*] and L. Jiménez^a

^aDepartament d'Enginyeria Química, Universitat Rovira i Virgili, Av. Països Catalans 26, Tarragona 43007, Spain

Abstract

In recent years, new environmental policies have been developed to reduce the environmental impact of human activities. Designing these policies in an effective manner is challenging because it requires a detailed knowledge of the whole economic and environmental system and the way in which they interact with each other.

In terms of economics, input-output analysis (IO) is widely used to predict changes in an entire economy according to changes in the demand of a single (or several) sectors. This method studies the effects that different sectors have on the economy as a whole. Purely economic IO tables can be modified so as to include environmental aspects, giving rise to environmentally extended input-output tables (EEIO). These tables contain information on the environmental assessment of the economic transactions taking place in a region, but provide no guidelines on how to reduce such an impact.

We present in this work a systematic approach to reduce the environmental impact of a whole economy. Our strategy combines multi-objective optimization and multi-regional input-output models within a single unified framework that allows identifying the activities whose control and regulation can lead to larger reductions of impact at a minimum decrease in gross domestic product (GDP).

We have applied our tool to the economy of the United States in order to identify the best policies to be implemented in practice for optimizing simultaneously the economic and environmental performance. We have employed in the calculations the World Input-Output Database (WIOD), which was originally developed to analyze the effects of globalization on trade patterns, environmental pressures, and socio-economic development across a wide set of countries. WIOD describes the economic inputs and outputs in monetary terms of 35 manufacturing sectors covering 27 EU countries and 13 other major countries in the world for the period 1995 to 2009.

Our approach provides valuable insight into how to reduce the impact globally. By adopting this birds' eye view of a whole economy, it is possible to determine how the final demand (and the total production) of every sector in an economy should be modified so as to improve simultaneously the economic and environmental performance of an economy.

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[*] Corresponding author:  tel. +34-977 55 86 18 email: gonzalo.guillen@urv.cat