# **2. Characteristics of the MAMS framework**<sup>**3**</sup>

MAMS is an economy-wide simulation model created to analyze development strategies. The model integrates a relatively standard dynamic recursive computable general equilibrium (CGE) model with an additional module that links government policies and other relevant indicators to poverty and other MDG outcomes. The relatively detailed treatment of government activities in MAMS makes this link possible. In contrast to narrow sectoral analyses, MAMS takes into account all flows in the economy. We will here describe the model as applied to Rwanda, referring to the disaggregation that is driven by the Rwandan database that we constructed.

The core CGE model includes a government sector that is disaggregated into 8 functions: three types of education (primary, secondary, and tertiary cycles), health, water-sanitation, agricultural services, (other) infrastructure, and other government services. Like other production activities, these government sectors use production factors and intermediate inputs to produce an activityspecific output (in the case of the government this means different types of services). The private sector is divided into agriculture, mining, other industry, and services.

The factors of production in the model include three types of labor: those with less than completed secondary education, with completed secondary education but incomplete tertiary, and with complete tertiary education. Each of these labor types is therefore linked directly to the education sectors/cycles, and thus the growth in the labor force will in part depend on the functioning of the education system in the model. The remaining factors of production include public capital stocks by government activity and a private capital stock.

The government finances its activities from domestic taxes, domestic borrowing, and foreign aid (borrowing and grants). The provision of education, health, and water-sanitation services contribute directly to the MDGs. Growth in the stock of public infrastructure capital contributes to overall growth by adding to the productivity of other production activities (both private and public); growth in the capital stock generated by government investments in agriculture contributes to productivity in the private agricultural sector.

The model includes a single household (an aggregate private domestic institution). The receipts of the household consist of factor incomes, transfers from the government and the rest of the world (including worker remittances) and interest on the domestic government debt. These receipts are allocated to direct taxes (reflecting government policy), savings (with a savings rate that responds to higher per-capita incomes), and consumption (using demand functions derived from utility maximization).

In its interactions with the rest of the world, Rwanda spends foreign exchange on imports and interest. Its receipts stem from exports, foreign transfers to the government and the household, government borrowing from abroad, and foreign direct investment. Domestic commodity supplies are imperfectly transformable between two destinations, domestic sales and exports; the ratios between sales to these two destinations respond to changes in the ratio between domestic sales and export prices. Similarly, commodity demanders view imports and domestic output as imperfect substitutes and respond to relevant relative price changes.

The model focuses on the subset of the MDGs that tend to be most costly and have the greatest interaction with the rest of the economy. More specifically, in the Rwanda application, the MDGs

> 3 This section draws on Bourguignon et al. (2008). For a detailed technical documentation see Lofgren and DiazBonilla (2008).

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