Capital Mobility and spillovers within a modular approach to multiregion modeling

This paper presents a multiregion modeling approach focussing on capital mobility and spillovers. The approach is based on a Ramsey type economic growth model, on the one hand, and on the balance of payment concept, on the other hand. The way to find an equilibrium solution is novel. It differs from the solution method applied for the Arrow-Debreu type computable general equilibrium models and also from the Negishi approach. The present approach represents the regions as autonomously optimizing agents. The core element is a trade module which is an iterative algorithm that can be conceived as representing an auctioneer who balances the interactions of the decentralized agents. We discuss the characteristics of the underlying tatonnement process and demonstrate equivalence in the outcomes of the Negishi approach and the modular approach in a common problem setting without spillovers. The modular approach gains additional relevance when trying to integrate spillover effects. Results,from numerical model experiments, depicting welfare and terms of trade implications, are presented for cases with and without spillovers. According to first results, it turns out that there are only moderate positive feedbacks from technological spillovers to the foreign direct investors