# **3 MAMS for Moldova**

In this section we briefly present the analytical tool used in this analysis, which was developed at the World Bank: MAMS (Maquette for MDG Simulations), a dynamic CGE model for medium- and longrun strategy analysis. The strength of Computable General Equilibrium (CGE) models lies in that they combine theoretically and empirically solid accounts of the behavior of economic agents and institutions, real world data (from national accounts, household surveys and other statistical sources), flexibility in terms of data requirements and analytical focus, as well as the ability to test the impact of shocks (policy changes and/or other exogenous changes that are beyond the control of domestic policy makers) that are relevant to the future of the modeled economy. CGE models have a comparative advantage relative to partial equilibrium models when the shocks of interest have repercussions throughout the economy, especially if these repercussions also have a significant feedback on the parts of the economy that most directly were impacted by the shock.<sup>**5**</sup> This study uses a “core” version of MAMS, a dynamic CGE model developed at the World Bank, designed to analyze strategies for medium- and long-run growth and poverty reduction in developing countries.<sup>**6**</sup> Given the analytical focus of our study and in order to reduce data needs, it does not cover MDG indicators other than poverty.

The development of MAMS is and has been driven by a strongly felt need for an economy-wide approach to medium- and long-run development strategy analysis that is flexible enough to be linked to country-specific databases that may differ considerably in their characteristics (including disaggregation).

The starting point for MAMS is the static, standard CGE model developed at the International Food Policy Research Institute (IFPRI) (Lofgren et al., 2002). The core version of MAMS is significantly extended in that it (a) is (recursively) dynamic; (b) tracks investments and assets (liabilities) of its different institutions (factor endowments, domestic government debts, and foreign debts); and (c) endogenizes factor productivity (which depends, in the basic specification, on economic openness and government capital stocks).

We here provide a non-technical description of the structure of MAMS, using Figure 6 as our reference point.

The major building blocks of the model may be divided into activities (the entities that carry out production), commodities (activity outputs or, exceptionally, imports without domestic production; linked to markets), factors (also linked to markets), institutions (households, the government, and the rest of the world). In Figure 6, private investment financing also has its own box given the

> **5** To provide an example, a CGE model is typically required to understand the impact on the welfare of remaining household members (as well as on the rest of the economy) from a significant increase in labor emigration and worker remittances. To the extent that the exchange rate, wages, and prices all change, it is misleading to limit the analysis to the initial direct impact (higher remittances). In recent years, other analyses of Moldova’s economy have used the IFPRI standard model (e.g. Oprunenco, 2011; Atamanov et al., 2008; ITAQA, 2009).

> **6** For a detailed description of MAMS, see Lofgren et al. (2012) or Lofgren and Diaz-Bonilla (2010). Various MAMS-related materials are found at www.worldbank.org/mams.

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