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Comparing the Economic Impact of an Export Shock in Two Modeling Frameworks

  • Andrew J. Cassey
  • David W. Holland
  • Abdul Razack

    ()

    (School of Economic Sciences, Washington State University)

Because of more restrictive assumptions on regional input-output (IO) models compared to computable general equilibrium (CGE) models, the literature agrees IO results are intuitively consistent with long run equilibrium but otherwise overestimated. We compare the results of IO and CGE models from an exogenous export shock under various labor market constraints and capital closures. Consistent with the literature, we find the IO model's results do not match those of the CGE models. But contrary to conventional wisdom, the positive secondary impacts are larger with the CGE models than with the IO model. Furthermore, we find the closest match between direct effects is when the CGE model has short run restrictions. Our finding means that the common view of CGE model results being both lower in estimate and more accurate in the short run than IO models does not universally hold. Thus researchers’ choice of models and interpretation of results need to be more nuanced and cautious than previously thought.

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/Cassey/WP2010-12.pdf
File Function: First version, 2010
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Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2010-12.

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Length: 35 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:wsu:wpaper:cassey-4
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  1. Mark Partridge & Dan Rickman, 2010. "Computable General Equilibrium (CGE) Modelling for Regional Economic Development Analysis," Regional Studies, Taylor & Francis Journals, vol. 44(10), pages 1311-1328.
  2. Mark D. Partridge & Dan S. Rickman, 1998. "Regional Computable General Equilibrium Modeling: A Survey and Critical Appraisal," International Regional Science Review, SAGE Publishing, vol. 21(3), pages 205-248, December.
  3. Christine Wieck & David Holland, 2010. "The economic effect of the Canadian BSE outbreak on the US economy," Applied Economics, Taylor & Francis Journals, vol. 42(8), pages 935-946.
  4. Dan S. Rickman, 2002. "A Bayesian forecasting approach to constructing regional input-output based employment multipliers," Papers in Regional Science, Springer;Regional Science Association International, vol. 81(4), pages 483-498.
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