CoPS/IMPACT Working Paper Number G-320

Title: Estimating the Economic Impact of Large Hydropower Projects: A Dynamic Multi-regional Computable General Equilibrium Analysis

Authors: Hongzhen Ni, Jing Zhao, Xiujian Peng, Glyn Wittwer and Genfa Chena


This paper uses SinoTERM, a dynamic multi-regional computable general equilibrium model (CGE) of the Chinese economy, to analyze the economic impact of large hydropower development projects. The model features regional labor market dynamics and an electricity subdivision module with substitutability between various types of electricity generation. The results suggest that hydropower development will boost economic growth in the project region. Most sectors in the project region will benefit from the hydropower development while some sectors will suffer a loss in output because of the substantial increase in real wages. Neighboring regions also benefit as a result of increased electricity supply in the operational phase of the proposed hydropower station. The impact of the hydropower development project on the national GDP as a whole is relatively small although positive. However, because of the long lag between the construction and operational phases, the hydropower development project will result in a national welfare loss measured by real household consumption and net foreign liability. Therefore, the project could only be justified if net environmental benefits outweigh this loss.

JEL classification: C68, O13, R58

Keywords: dynamic CGE model; hydropower development; multiple regions; economic impacts; electricity subdivision module, China

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