The General Interregional Quantity Model

The paper gives a mathematical presentation of the interregional general equilibrium model LINE, which is a sub-regional economic model for Danish municipalities. LINE is an extended version of a simple national general equilibrium model, where space and SAM-actors have been included. The basic structure of the model includes a real circle, showing the conventional Keynesian demand chain, where production is determined by demand, income by production, and private consumption by income. In this circle regional and interregional spillover and feed-back effects and interaction between SAM-actors are included. Further, the basic structure includes a cost-price circle, showing the determination of prices of production by the costs of production, including costs of intermediate consumption, wages and salaries and profits. Sector prices are then transformed to commodity prices by place of production, to commodity prices at place of commodity market place and to private consumption at place of residence. Finally, LINE is closed through a number of links between the real circle and cost-price circle, including equations for the behaviour of the consumers and producers. Given the analytical solution to LINE, it is possible to evaluate the regional impacts of changes in exogenous variables, such as the transport system or policy instruments. Using model multipliers obtained from the analytical solution the impacts of changes in regional demand and its structure, changes in regional productivity, changes in regional labour market and other regional economic changes are examined. Of special interest are the impacts of changes in regional accessibility, which in the new economic geography literature, is an important factor determining regional development.