1. NETHERLANDS INSTITUTE
Empirics in the New Economic Geography:
Spatial Computable General Equilibrium
simulations using GAMS
Mark Thissen
Lecture 3:
July 4, 2007
Dimetic workshop
Pécs, Hungary
Region 1
Region 2
Region 3
NETHERLANDS INSTITUTE
FOR
SPATIAL RESEARCH

2. Contents
Developing a “simple” model with two sectors and three regions.
Applying it in GAMS
Calibration of the model
Doing Policy experiments

3. Model 1: Production
(1)

4. Model 2: Production and agglomeration economies
(1)
(2)

5. Model 3: Small regions CGE’s
(1)
(2)
(3)
(4)

6. Model 4: Small regions CGE’s with sector labour demand
(1)
(2)
(3)
(4)
(5)
(6)

7. Model 5: Small regional CGE with labour migration
(1)
(5)
(2)
(6)
(3)
(4)
(7)
(8)
(9)

8. Model 6: Interregional trade CGE model
(1)
(2)
(10)
(11)
(14)
(12)
(13)
(15)

9. Model 6: Calibration: How does the interregional economy look like?

10. Model 7: Interregional trade CGE model
(Model 6) with the following additional equations
(8)
(9)
(16)

11. Model 8: Endogenous transport costs depending on trade flows
Region 1
Region 2
Region 3
Within regions: within region flow
From and to region 2: also the passing flows
From and to regions 1 or 3: Also half of the flow from and to region 2

12. Exercise
The government has the plan to increase road capacity between from region 1 to 2.
The government wants to know the maximum it should spend on road construction.
Set up a plan how to analyze this question.
Answer the question using model 7 or 8