Bayesian Estimation of Regional Production for CGE Modeling

Abstract Computable general equilibrium (CGE) models are often criticized for using restrictive functional forms and relying on external sources for parameter values in their calibration. CGE modelers argue that in many instances reliable econometric estimates of important model parameters are unavailable because they must be estimated using small numbers of time‐series observations. To address these criticisms, this paper uses a Bayesian approach to estimate the parameters of a translog production function in a regional computable general equilibrium model. Using priors from more reliable national estimates, and parameter restrictions required by neoclassical production theory, estimation is done by Markov chain Monte Carlo simulation. A stylized regional CGE model is then used to contrast policy responses of a Cobb‐Douglas specification with those from the estimated translog equation.     

Modeling Regional Economic Resilience to Disasters: A Computable General Equilibrium Analysis of Water Service Disruptions*

Abstract. Recent natural and manmade disasters have had significant regional economic impacts. These effects have been muted, however, by the resilience of individual businesses and of regional markets, which refers to the inherent ability and adaptive responses that enable firms and regions to avoid potential losses. Computable general equilibrium (CGE) analysis is a promising approach to disaster impact analysis because it is able to model the behavioral response to input shortages and changing market conditions. However, without further refinement, CGE models, as well as nearly all other economic models, reflect only “business‐as‐usual” conditions, when they are based on historical data. This paper advances the CGE analysis of major supply disruptions of critical inputs by: specifying operational definitions of individual business and regional macroeconomic resilience, linking production function parameters to various types of producer adaptations in emergencies, developing algorithms for recalibrating production functions to empirical or simulation data, and decomposing partial and general equilibrium responses. We illustrate some of these contributions in a case study of the sectoral and regional economic impacts of a disruption to the Portland Metropolitan Water System in the aftermath of a major earthquake.     

THE ROLE OF DEFENSE CUTS IN THE CALIFORNIA RECESSION COMPUTABLE GENERAL EQUILIBRIUM MODELS AND INTERSTATE FACTOR MOBILITY*

ABSTRACT. This study develops a computable general equilibrium (CGE) model of California to examine the impact of recent defense cuts on the state's economy. The study demonstrates use of a CGE model to examine the sensitivity of regional economy models to assumptions about factor migration. Model variants include input-output and closed economy models as limiting cases. The results show that the California economy is sensitive to defense cuts. The multiplier relating the impact of defense cuts to state product ranges from one to almost five, depending on the degree of interstate factor mobility.     

How Does Economic Development in Eastern Europe Affect Austria's Regions? A Multiregional General Equilibrium Framework

The paper quantifies regional welfare effects arising from the increasing trade flows between Austria and its Eastern neighbors after the opening up of Eastern Europe. We calibrate a static multiregional Computable General Equilibrium (CGE) model with benchmark data from 1994 for Austria, subdivided into nine Federal Provinces. The regions are linked by trade flows with the four Eastern neighboring countries and with the rest of the world. We simulate the effects of the increase of trade interpenetration as observed between 1989 and 1999 in a comparative static analysis. Regional welfare effects under fixed and flexible wages are presented. We also compare national CGE results with estimates obtained in a simple partial equilibrium approach.     

UNDERSTANDING THE UNIQUE IMPACTS OF ECONOMIC GROWTH VARIABLES*

ABSTRACT The paper uses a computable general equilibrium (CGE) model for a small city to examine how expansions in export and local sectors, changes in total factor productivity (TFP), and growth in population impact an economy. We examine the effects of each source of growth and find that the level and distribution of economic activity vary considerably. We also evaluate each source of growth in the context of a variety of policy metrics, which provide guidelines to policy makers, including the types of firms to be recruited in specific regions.     

A LONG-RUN INTERPRETATION OF REGIONAL INPUT-OUTPUT ANALYSIS*

ABSTRACT. Regional input-output (I-O) analysis is traditionally motivated by a short-run, extreme Keynesian vision of markets. In this paper we argue that an appropriately formulated, investment-endogenous, I-O system replicates the long-run equilibria of a wide range of regional models, many of which do not operate as I-O systems in the short run. In particular, we use a computable general equilibrium (CGE) framework to illustrate the impact of an aggregate demand disturbance on an I-O and standard neoclassical model. When run forward over a number of periods, the results from the capacity-constrained neoclassical model asymptotically approach the I-O outcome. We use sensitivity analysis to examine the speed of adjustment of the neo-classical system and investigate barriers to the attainment of the I-O result.     

THE OPTIMAL CONVERGENCE OF REGIONAL INCOMES*

For many policy considerations it is assumed that the convergence of regional mean income will improve national equity by reducing overall inequality. The literature on decomposability of social welfare functions implies that this assumption is unwarranted. This paper develops a notion of optimal regional convergence. In general, the point of optimal convergence depends on the shapes of the regional income distributions, the inequality index used, and the rule for distributing interregional transfers. These concepts are illustrated with data on the regional income distributions of the Southern and Northern United States.     

OPTIMAL REGIONAL GROWTH MODELS: MULTIPLE OBJECTIVES, SINGULAR CONTROLS, AND SUFFICIENCY CONDITIONS

ABSTRACT We develop a generalized Harrod-Domar type of model for optimal regional growth which allows determination of the optimal allocation of regional public investments and which considers multiple growth objectives, as well as both normal and singular fiscal instruments. This general model is shown to include most of the previous optimal regional growth models as special cases. Necessary conditions for some special cases of the general model are analyzed in detail, and decision rules associated with derived optimal regional growth policies are articulated. These special cases verify that singular controls do exist in certain instances, and that they must be considered for the complete specification of optimal regional growth policies; this is significant because singular controls have not been previously analyzed in the literature. We conclude the paper with a discussion of sufficiency conditions for optimal regional growth models which is more general than that given by previous authors.     

The Role of Universities in Regional Development: Conceptual Models and Policy Institutions in the UK,Sweden and Austria

The literature on universities’ contributions to regional development is broad and diverse. A precise understanding of how regions may draw advantages from various university activities and the role of public policy institutions in promoting such activities is still missing. The aim of this paper is to provide a framework for analysing universities’ contributions to regional economic and societal development in differing national contexts and the policy institutions that underpin them. To do this, we review four conceptual models: the entrepreneurial university model, the regional innovation system (RIS) model, the mode 2 university model and the engaged university model. The paper demonstrates that these four models emphasize very different activities and outputs by which universities are seen to benefit regional economy and society. It is also shown that these models differ markedly with respect to the policy implications and practice. Analysing some of the public policy imperatives and incentives in the UK, Austria and Sweden, the paper highlights that in the UK, policies encourage all four university models. In contrast, in Sweden and Austria, policy institutions tend to privilege the RIS university model, whilst at the same time, there is some evidence for increasing support of the entrepreneurial university model.     

TRANSPORTATION COSTS IN REGIONAI,MODELS OF FOREIGN TRADE: AN APPLICATION TO CANADA-U.S. TRADE*

ABSTRACT. This paper outlines some arguments about the role of transportation costs in determining the welfare consequences of trade restrictions. The analysis uses a computable general equilibrium (CGE) model and presents the relevant features for trade analysis. The model has two alternative spatial formulations. In the first, all production and trade occur at one point, while in the second the regions are separated by distance. The calculated effects of a unilateral tariff increase are compared using the CGE model with the “point” and “distance” formulation. While the presence of transportation costs is crucial to some sectoral trade and production results, most welfare results are relatively insensitive to the spatial structure of the model.     

实施区域倾斜政策逐步缩小我国地区经济发展差距

本文根据区域政策在地区经济发展和地区差距变动中的作用,提出应当对我国中西部地区实施区域倾斜政策,以实现控制地区相对差距不再扩大的第一步目标和地区绝对差距逐渐缩小的第二步目标。指出这一区域倾斜政策应当是一个兼顾效率与公平的区域政策,是一个向重点地区和重点领域倾斜的区域政策,是一个包括经济优惠、社会公平和生态补偿等方面手段的区域政策。     

Knowledge-based development dynamics in less favoured regions: insights from Australian and Icelandic university towns

Knowledge-based development (KBD) is a widely practiced policy and is signified as an effective development approach particularly for the metropolitan city-region context. Even though, increasing recognition of this policy resulted in some initiatives in less favoured regions – such as regional university towns – its appropriateness for this context has not been investigated adequately. This paper explores the concept thoroughly in regional university town settings from the lens of the triple-helix model – a critical element for success in KBD. The study aims to broaden our understanding on the challenges of implementing a successful triple-helix model in regional university towns by providing evidence from different country contexts – Australia and Iceland. The methodology of the comparative case investigation incorporates policy and stakeholder perception analyses. Results reveal the journey of the investigated cases, their limited accomplishments and failure factors. Findings shed light on the developmental challenges of regional university towns by highlighting critical issues relating to suitability, appropriate implementation and effectiveness of the KBD policy.     

Interactions between Weather Stochasticity and the Locations of Pollution Sources and Receptors in Air Quality Planning: A Chance-Constrained Approach

Optimization models for the design of regional air quality control strategies have been developed under the assumption that the annual frequencies of the different meteorological conditions remain constant from year to year. This paper demonstrates empirically that this assumption is not correct, and that the solutions of such models lead either to violation of the annual air quality standard or to unnecessarily high costs for pollution abatement. A chance-constrained, geographically based approach is formulated to account for the interannual randomness of the meteorological conditions and for the locations of pollution sources and receptors and is applied with different approximation methods. The policy implications of the results in terms of optimal standard selection and implementation of the optimal chance-constrained pollution abatement plan through decentralized decision-making by individual pollution sources are assessed.     

Optimal Environmental policies for Sustainable Growth: A Two-Region Model

I examine the sustainability of a spatial economy consisting of an advanced region and a developing region. The advanced region aids the developing region with technological knowledge on pollution abatement. The model is based mainly on that of van den Bergh and Nijkamp (1995) but differs in that the aids are determined through an optimal control method. The numerical simulation shows that the optimal control policy is thought to be effective in the sense that almost all trajectories of the welfare index of the advanced region are single-peaked with a fairly long duration of growth, and the policy favorably affects the welfare level of the developing region.     

The Macro‐Economic Effects of Directed Credit Policies: A Real‐Financial CGE Evaluation for India

The effectiveness of directed credit programmes as an instrument for economic development is the subject of considerable debate. However, the focus of this debate is almost exclusively on the intra‐sectoral effects of directed credit and its adverse effects on financial sector performance, neglecting possible spillover effects on demand, production and investment in the rest of the economy. This article tries to fill this gap by examining the macro‐economic effects of directed credit in India with the help of a novel real‐financial computable general equilibrium (CGE) model. Focusing on credit rather than money, the model goes beyond earlier modelling approaches by (1) incorporating directed credit policy and credit rationing; (2) recognizing the dual role of credit for working capital and investment; and (3) allowing for switches between credit‐constrained, capacity‐constrained and demand‐constrained regimes. The results from short‐ and medium‐term simulation experiments with the model indicate that, when credit market failures result in rationing as in India’s agricultural and small‐scale industrial sectors, the macro‐economic effects of directed credit are likely to be significant and positive.     

Creation and Alignment of the Eco-innovation Strategy Model to Regional Innovation Strategy: A Case from Lahti (Päijät-Häme Region), Finland

This study focuses on the importance of eco-innovation in regional innovation strategy and policy development. It is conducted to get an in-depth understanding and learning about eco-innovation at the regional level and to draw some principles that are important in creating and aligning the eco-innovation strategy model to regional innovation strategy. The study highlights the new eco-innovation strategy model called SAMPO which was created and developed through a series of multi-stakeholder consultations which embodied the strengthening of the region's expertise—learning and knowledge-generating environment, design and innovation. These three areas of regional expertise are translated in the SAMPO model as three spearheads of innovation activities categorized as practice-based innovation, eco-design and sustainable innovation. Some principles are derived from the creation of the SAMPO model and put forward as strategic learning points in regional innovation strategy. The SAMPO model as positively acknowledged by the Päijät-Häme Regional Council, business clusters, research institutes and academic organizations may serve as a new framework that is useful in formulating and recreating eco-innovation policy in the region.     

Sizing Up State Policy Innovation Research

In the literature on state policy innovation, there are three major explanations for what causes a government to adopt a new policy. One is the internal determinants model, which posits that the main factors leading a state to innovate are internal political, social and economic characteristics of the stale. The other two are diffusion models—the regional diffusion model, and the national interaction model—which see slate policy adoptions as emulations of earlier adoptions by other states. Each of the three models has been associated with a distinct strategy for empirical testing. The regional diffusion model has been tested with factor analysis, the national interaction model with time-series regression, and the internal determinants model with cross-sectional regression. In this paper, I explore the ability of these "single-explanation" methodologies to detect the true innovation process underlying stale policy adoptions, by applying these methodologies to data generated from simulated innovation processes with known characteristics. I find that the methodologies often yield incorrect conclusions about the character of innovation. I conclude by presenting an agenda for refining a superior alternative methodology: the event history analysis approach to state policy innovation research introduced by Berry and Berry (1990).     

Industrial policy in the EU: old dilemmas and new options

Industrial policy is highly controversial. Supporters claim it is necessary to address market failures. Critics argue that the danger of government failure is often higher and that such failure may lead to greater welfare loss. The EU justifies its industrial policy by pointing to the existence of transnational problems and to its unique ability to counter them. The EU has the capacity to coordinate national policies, to reduce redundancies, to control and limit national subsidies to industry. It also has a mandate for managing EU foreign trade and competition policy. There are five major industrial policy arenas. Technology policy has been relatively successful in certain fields like telecommunications or traffic‐control systems. In other fields, such as micro‐electronics and computers, the results have been mixed at best. Regional policy has had a limited developmental impact. On foreign‐trade policy, anti‐dumping measures have largely been a failure, though they have stimulated Japanese direct investment. A division of labour between the EU Commission and national, regional and local governments should be advanced with a view to formulating and implementing industrial policy. The regional and local levels should formulate policies aimed at strengthening specialized factors. The EU should concentrate primarily on fostering and shaping new lines of technological development and managing capacity reduction in declining industries.     

Retail Development in The Netherlands: Evaluating the Effects of Radical Changes in Planning Policy

After long years of a protective national retail planning policy, the Dutch national government decided in 2004 on a radical shift with respect to this policy, by abolishing restrictive retail regulations. The provinces have recently responded by reinstalling the main elements of the national retail planning model at the regional level. This article shows that nevertheless unintended structural changes in the Dutch retail landscape have occurred. Building on theoretical perspectives on institutional change and normative approaches to planning, the article evaluates the rationale behind the shifts in the planning regime and the extent to which the “new” planning regime meets the conditions for a collaborative planning approach. Additionally, regional differences in the effectiveness of retail planning are analysed and related to regional differences in the planning regime.     

长江三角洲区域政策强度的定量化及其演变过程——以区域开放开发政策为例

区域政策强度是政府投入影响区域经济格局的政策变量值的大小。区域政策强度的影响因素可分为政策自身内容和政策背景属性两类,前者主要考察政策工具体系,后者则主要考察区域政策的影响范围和政策实施保障能力。在此基础上提出区域政策强度定量化的指标体系,据此定量考察区域政策强度值的时空演变规律与特征。以改革开放以来长江三角洲实施的区域开放开发政策作为实证研究样本,经过区域政策强度的定量化分析发现:区域开放开发政策强度具有能级上的差异,不同类型区域政策的强度值变化特征不同,并在时间上呈阶段性和周期性,在空间上由等级梯度向扁平化转变。