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infrastructures, most studies only considered certain types of spatial dependence in
isolation as either spatial lag or spatial error. Without an adequate interpretation of
the reasons for selecting a specific spatial model, it is possible that results of even
these spatial studies may have estimation bias due to the neglect of a specific kind of
spatial dependence.
10.2.3 General Equilibrium Approach
Furthermore, most of the aforementioned impact analyses are conducted under the
partial equilibrium framework. The relationships between economic output and
infrastructure are normally evaluated from the supply side by assuming a constant
demand for infrastructure during the research period. As a matter of fact, the
outcome of impact evaluation may be incomplete since impacts caused from the
change in demand are not considered. For instance, transportation's impact on
travelers' welfare measured by levels of utility cannot be measured under the
partial equilibrium analysis. As a result, to obtain a comprehensive evaluation of
infrastructure, a general equilibrium framework is required.
The CGE model enables impact analysis with consideration of both demand and
supply. The theoretical framework relies on the Walras-Arrow-Debreu theory of
general equilibrium, with modern modifications and extensions allowing for imper-
fect markets (Br¨cker
2004
). Because CGE provides a clear linkage between the
microeconomic structure and the macroeconomic environment, the model can be
used to describe the interrelationship among different industrial sectors and
markets. More importantly, it can be used to assess both direct and indirect effects
from the change of public policy on various economic variables such as output,
employment, prices, income and welfare.
A CGE model usually consists of producer, consumer, government, and foreign
economy blocks. The fundamental assumptions on producers and consumers in
CGE are that producers seek profit maximization while consumers seek utility
maximization both within constraints of their resources. The process of production
can be illustrated either by a Cobb-Douglas form or a CES form. Government plays
dual roles in CGE. On the one hand as a policy maker, the relative policy variable is
introduced in CGE as an exogenous factor impacting the economy. On the other
hand as a consumer, government revenue that comes from tax and tariff is spent on
a variety of public expenditure such as public affairs, intergovernmental transfers
and subsidies. As far as international trade is concerned, the distributional process
between the domestic market and exports is illustrated by a constant elasticity
transformation (CET) while the process between the domestic market and imports
is normally illustrated by an Armington function (Br¨cker
2004
).
The applications of CGE in evaluating impacts of transportation infrastructure
investment vary substantially. Impacts can be evaluated differently depending on
specific research needs. Due to the fact that most transportation infrastructure
achieves economic benefits through increasing accessibility and reducing transport
costs, CGE analysis in transportation are usually constructed in a multi-regional
