Thematic and Spatial Concentration of CGE Models’ Application to Policy Research: Evidences from Palestine, Israel, the Sudan and Nigeria

Many countries in the developing world lack the required capacities and data to provide evidence-based policymaking. As a consequence, they apply a trial-and-error approach to their exchange rate, trade and domestic tax policies, among others. Some countries base their policies on the experiences of other countries that are not necessarily similar in terms of economic structure, sectoral linkages and trade openness. This could be partially justified as well by the difficulty of basing economic policies on researched evidence due to the forward and backward linkages that prevail in any economy, which necessitates ex post and ex ante policy impact analysis on the entirety of economic actors. This reality was recognized during the 1960s by researchers and Johansen (1960) was the first to envisage a solution for it in the form of what is currently known as Computable General Equilibrium (CGE) models. A CGE model is a mathematical representation of the economic actors (production activities, commodities and institutions, including foreign countries) that depict the entire economic structure of a regional entity (country, state, village etc.) in a specific period, usually one year, and using a dataset with the entire body of economic transactions among them. The data set includes a Social Accounting Matrix (SAM) in addition to various parameter values. Johansen’s CGE model was developed to assess the impact of economic policies in Norway and since then this method has developed rapidly and contributing significantly to the policy making process not only in the developed world, but also in developing countries. The importance of CGE models rests on their ability to provide economy-wide impact assessments with huge flexibility in capturing a detailed representation of the economy depending on the availability of data. Despite its reliance on the detailed dataset, CGE models are applied to many countries, including those with relatively poor records of economic data. Due to their complex mathematical representation and their detailed data requirement, CGE models have made significant use of recent advancements in processor speed and storage capacity, and are now not only static but also dynamic and part of integrated systems in which they source inputs from and deliver output to various types of models such as crop, biophysical and climate models. The possibility of linking them to other models means their use is not only confined to economics, but can also be applied to various economic aspects of physics, environmental sciences, engineering and medicine, among other disciplines. Despite the widespread use of CGE models, no comprehensive review of their applications to the different geographical regions of the world, the different types of problems they contributed to and the different disciplines they addressed is available. This kind of review is expected to show their usefulness and identify the regions, themes and disciplines that lack their applications and, hence, to direct future research. These are the main objectives of this current study. This study starts by exploring the history of CGE models, including the intensity of their applications worldwide and the areas of research in which they have been applied through the time, with a special focus on the period between 1980 and 2014. The study also explores classifying CGE applications by the kind of services they have provided to advice policymaking, especially in developing countries. A comprehensive review of the CGE literature based on research included in the Scopus database (Scopus is a bibliographic database that contains abstracts and citations for academic journal articles, books, chapters and other research work. It comprises 53 million records, 21,915 titles from 5000 publishers and it belongs to Elsevier. For more details, visit: http://www.elsevier.com/online-tools/scopus) showed more than a thousand (The results of the search showed 1027 studies of which 854 are published as journal articles, 65 as conference proceedings, 15 as book chapters, 14 as review articles and 4 as books.) of CGE-based studies were conducted during the period between 1980 and 2014. Although this search does not reflect the entirety of CGE publication in the last three decades and a half, it provides rough indications about the importance of such a method and its contribution to policy analysis and the policymaking process globally. CGE applications began, and flourished, in the developed world, led by the United States (USA) and Europe. Early CGE models applied to the USA were designed to address policy issues such as public finance, international trade and environmental policy (Devarajan and Robinson, 2013a). Their applications to developing countries, although not as numerous as those of the developed world three decades ago, also started to appear during the eighties, and various applications have followed during the last three decades. The study reviewed the entire Scopus CGE literature and classified it according to geography, disciplines and model types. Due the research focus of the author in his own empirical work, the study chose to select four countries to provide deep assessments of CGE applications and identify areas for future research using CGE models. The selected countries are Palestine, Israel, the Sudan and Nigeria. All the CGE applications to these countries are reviewed, and their areas of applications and the type of problems they addressed have been identified. Major conclusions are that CGE applications to any of these countries are mostly concentrated on specific areas of research and specific types of problems. CGE applications to Palestine, for instance, are mainly focused on assessing the impact of Intifada and exploring policy options for Palestine away from the settings provided by the Paris protocol. CGE applications to Nigeria mainly address issues related to oil prices and government spending. This concentration is not a negative aspect in general, because research is usually motivated by the prevailing policy problems in the particular country. However, in some countries it seems that CGE applications are determined by the area of research given in the first study applied to the country. Researchers may recognize the usefulness of CGE models in addressing certain type of problems in their country and continue pursuing similar research without exploring other areas in which CGE models could be useful, such as addressing labor movement in Palestine or the environmental problems caused by the continuous sabotaging of oil pipelines in Nigeria.