Regional Computable General Equilibrium models: A review

Abstract

Computable General Equilibrium (CGE) models are very popular for analyzing a wide range of policy issues. CGE applications vary from estimating the welfare impact of tax reform and alternative energy policies to the effect of foreign trade reforms, labour markets and employment. CGE models are commonly developed at the country level; however, modified versions of CGE, so called Regional CGE (RCGE) models, can be used at subnational disaggregation to examine impacts studied at the national counterparts on a specific region. RCGE models have grown in popularity as an alternative to the Input-Output (I-O) models, which are regularly used for regional analysis. RCGE models can provide comprehensive information, which make them more desirable analytical models for many researchers. Yet, RCGE models have not yet become a “go-to” for governmental policy practitioners when they are developing regional public policies. This paper reviews the current state of regional CGE models, describes their features, contributions and limitations and surveys some applications of the main three classes of RCGE models: region-specific, bottom-up, and top-down models. This paper concludes that the applications of RCGE are quite variable and flexible, with a new and more complex type of application to be developed with the advancement of computation economics. The paper offers recommendations on the micro, meso and macro conditions that are necessary to increase policy practitioners’ utilization of RCGE models.