Regional CGE
MODEL LAB · LABORATORY 12
Regional
CGE.
Place markets inside space. Model regional production, factor endowments, trade, commuting, migration and capital adjustment to understand why the same national policy can create sharply different local outcomes.
TRADE · LABOUR · CAPITAL
FROM NATIONAL TO REGIONAL EQUILIBRIUM
One country.
Different places.
A regional CGE model disaggregates the national economy while preserving national consistency. Local outcomes depend on production structure, resource constraints and connectivity.
Regional production
Each region has a distinct sector mix, technology, productivity and factor intensity.
Regional labour
Employment, wages, commuting and migration connect people to geographically distributed jobs.
Regional trade
Bilateral sourcing transmits price and demand changes between production locations.
Regional capital
Capital may be place-specific in the short run and progressively mobile over longer horizons.
SPATIAL ADJUSTMENT MECHANISMS
Economic distance
shapes equilibrium.
Migration and commuting
LMʳˢ = f(wʳ − wˢ, cʳˢ)
Workers respond to wage differentials, living costs, amenities and mobility barriers.
Regional sourcing
qʳˢ = qʳˢ(pʳ, τʳˢ, σ)
Delivered prices combine producer costs and bilateral transport or trade margins.
Investment location
Iʳ = Iʳ(rʳ − r̄, κ)
Expected returns attract investment subject to adjustment costs and place-specific risk.
PLACE-BASED POLICY LAB
Shock one region.
Rebalance two.
Apply public investment to a target region and alter mobility, trade leakage and capital adjustment. Results are conceptual percentage deviations from baseline.
Region A · Target
- REAL OUTPUT
- +5.2%
- EMPLOYMENT
- +2.0%
- REAL WAGE
- +2.3%
- POPULATION
- +0.6%
Region B · Connected
- REAL OUTPUT
- +1.2%
- EMPLOYMENT
- +0.3%
- REAL WAGE
- +0.2%
- POPULATION
- −0.6%
SPATIAL POLICY READINGRegion A captures most of the output gain. Trade creates a positive spillover in Region B, while labour mobility moderates the wage gap through migration.
REGIONAL MODELLING CHOICES
Geography must be
represented, not assumed.
Regional boundaries
Administrative regions may not coincide with labour markets, supply chains or functional economies.
Labour mobility
Short-run commuting and long-run migration require different behavioural parameters and closures.
Capital horizon
Sector-specific capital is plausible initially; mobile investment becomes more plausible over time.
Local prices
Housing, land, wages and services may respond regionally even when national commodity prices are shared.
SCIENTIFIC CHECKPOINT
Why can mobility reduce
a regional wage gap?
What is the principal adjustment mechanism?
Think about how labour supply responds to spatial wage differentials.
