Contribution of Computable General Equilibrium Modeling to Policy Formulation in Developing Countries

This chapter reviews the experience of computable general equilibrium (CGE) models from the perspective of how they have, or have not, influenced public policy in developing countries. The paper describes different classes of empirical models – from small, stylized to large, multisectoral applied models; from static equilibrium models to dynamic, perfect-foresight models – and identifies the characteristics of models best suited to address different policy problems in developing countries. The paper then discusses the different ways CGE models have been and are being used in policy formulation, the types of questions they have addressed, and the lessons learned from past experience. Finally, the paper suggests that, in light of the changing nature of policy making in developing countries, in the future CGE models should be used differently, moving from a purely technocratic exercise used by policy makers to providing an accessible empirical framework that can contribute to a widespread public debate.