Multi-Region CGE Models

Economic impact analysis based on the input-output approach takes into account the direct impact of the project on regional economic activity, and some of the downstream effects of the induced demand for goods and services elsewhere in the economy. But it does not take into account structural adjustments brought about by large infrastructure and industry development projects. Computable General Equilibrium (CGE) modelling is generally appropriate in these types of analyses, particularly where the focus is on impacts at a state or national level.

The multi-region CGE model used by Perennial Economics recognises:

• producers classified by industry and domestic region;
• investors similarly classified;
• multiple region-specific household sectors; and
• aggregate foreign purchaser of the domestic economy’s exports.

The model contains explicit representation of intraregional and interregional trade flows based on the Perennial Economics in-house input-output database. As each region has been modelled separately, the model captures the changes in economic activity resulting from the impact event (improvement in productivity, infrastructure investment, etc) . Second and subsequent round effects are captured via the model’s input-output linkages and account for economy-wide and international constraints.

The core input-output database of the CGE model is based on the Monash MRF model (MMRF), a multi-region model of the Australian economy.