John R. Madden

Regional Computable General Equilibrium Modeling

Over the past three decades the field of regional computable general equilibrium (CGE) modeling has flourished, growing from a handful of top-down, single-region and low-dimensioned multiregional models, to a mature field, in which output of large-scale general-purpose multiregional CGE models has become a standard input to policy deliberations in a growing number of countries. Researchers have ensured that innovations in theory, data construction and model application have matched growth in both computing power and the appetite of government decision makers for expanding levels of policy-relevant regional and sectoral detail. This chapter focuses on the development of the field, its current state, and its accomplishments in elucidating important research questions and policy issues in regional economics. We begin by discussing the development of regional CGE modeling as a subdiscipline of CGE modeling, expanding on the distinguishing attributes of regional CGE models. We then discuss policy applications of regional CGE models, demonstrating the power of such models to answer important policy questions and providing an application-driven motivation for our discussion of the innovations in the field. We consider the key theoretical features of multiregional CGE models, identifying the many ways researchers have modeled the behavior of economic agents in a multiregional context. The paucity of data at the regional level suitable for CGE modeling has long been a constraint and so we discuss methods for populating a multiregional model’s database. We then undertake simulations with a large-scale CGE model and show how output of the model can be communicated in a way that does not presume knowledge of the details of the underlying model. We note that effective communication of the results of regional CGE modeling studies, based on a correct interpretation of the model mechanisms which underlie them, is a prerequisite for its acceptance in policy circles.

A large-scale dynamic multi-regional CGE model with an illustrative application

This paper describes FEDERAL†F, a large†scale general†purpose multiregional computable general equilibrium model. The model is dynamic and can be used for forecasting, policy analysis and historical analysis. Large†scale CGE models are commonly used in Australia and play a central role in policy analysis. In this paper we provide an overview of the core of FEDERAL†Fs equations via a stylized representation that expresses the models equations in functional form. An illustrative application demonstrating the power of the model is undertaken. It demonstrates that a feasible state government fiscal policy to halt Tasmanias declining share of national GDP does not exist.

Regional Adjustment to Globalization: A CGE Analytical Framework

During the past decade or so regional modelers have been developing a new range of economic modeling tools with a capacity to analyze the causes and consequences of the current period of globalization. In this chapter, we examine some developments in multiregional computable general equilibrium (CGE) models that have enhanced their capacity to deal with economic globalization issues.1

Modelling the Regional Economic Consequences of Efficiency Gains in the Utilities Sector

There have been a number of computable general equilibrium (CGE) studies quantifying the economic impact of national competition policy (NCP). They typically involve long-run comparative static simulations with the most important shock being productivity improvements. These improvements are set equal to the productivity gap between relevant Australian industries and overseas counterparts (as measured by such methods as data envelopment analysis). The size of the estimated gaps and the assumption that NCP will eliminate them has been called into question. This paper develops an alternative approach that uses historical modelling with a dynamic multiregional CGE model (FEDERAL-F) to uncover changes, consistent with observed data, in the rate of productivity improvements in the utilities sector have had on the economies of Tasmania and mainland Australia, concentrating in particular on the Tasmanian results.