Applied General Equilibrium Model in the Context of Developing Economy

This chapter focuses on providing the techniques for applying general equilibrium models, emphasizing practical methods for constructing, analyzing, solving, and deriving policy implications from these models. Section 2.1 clarifies that it does not aim to analyze general equilibrium theoretically but instead provides tools for building and solving general equilibrium models. Meanwhile, this book focuses on developing countries and briefly introduces the Lewis dual economy model and the Harris and Todaro labor migration model. Moreover, using those two models, Sect. 2.2 provides a simple theoretical model and Sect. 2.3 conducts comparative analysis and offers methods to draw applications. Section 2.4 intensively introduces the Cobb–Douglas function and the constant elasticity of substitution production function, which is crucial to depict the substitution relationship between two input factors: labor and capital. By using Sect. 2.4, Sect. 2.5 introduces the Dixit-Stiglitz model which could portray monopolistic competition in some industries. Section 2.6 introduces the computable general equilibrium model and offers one example to illustrate it with programming code by using the software (General Algebraic Modeling System).