Demographic Challenges to Regional Development - Regional Science Matters - page 205

Table 11.1 Major equations in the ICGE model
Output Output ¼ Leontief (Value added, Intermediate demand)

Value added ¼ Total Factor Productivity CD (Capital stock, Labor by
age cohort)

Value added

Supply Output ¼ CET (Foreign exports, Domestic supply)

Domestic supply Domestic supply ¼ CET (Regional exports, Intraregional supply)

Demand Demand ¼ Armington (Foreign imports, Domestic demand)

Domestic demand Domestic demand ¼ Armington (Regional imports, Intraregional

supply)

Labor demand Labor demand ¼ LD (Wage by age cohort, Value added, Net price)

Wage by age cohort Wage by age cohort ¼ WA (Education, Type of employment, Job

experience)

Labor supply Labor supply ¼ LS (Labor market participation rate, Population)

Population Population Natural growth of previous year's population +Net

population inflows

¼

Regional incomes Regional incomes ¼ Wage + Capital returns +Government subsidies

Migration Migration ¼ TODARO (Incomes and Employment opportunities of

origin and destination, Distance between origin and destination)

Consumption by
commodity

Consumption by commodity ¼ CC (Price, Population size by age

cohort, Incomes)

Private savings Private savings ¼ PS (Saving rate by age cohort, Population size by age

cohort)

Government revenues Government revenues ¼ Indirect tax +Direct tax + Tariff

Government expenditures ¼ Government current expenditure
+Government savings +Government investment expenditure
+Government subsidies

Government
expenditures

Labor market
equilibrium

Labor demand ¼ Labor supply

Capital market
equilibrium

Private savings ¼ Total investments

Commodity market
equilibrium

Supply of commodities ¼ Demand for commodities

Government expenditures ¼ Government revenues Government

Capital stock Capital stock ¼ Depreciated lagged capital stock +New investments

investment but also reduced with a constant depreciation rate. The within-period
model is a square system of equations with 196 equations and 231 variables; a
unique solution can be found because the number of endogenous variables is the
same as the number of the equations under convexity. The exogenous variables
include world market prices and government expenditures. The numeraire of the
model is set as the consumer price index. In addition, we calibrated a Social
Accounting Matrix (SAM) as a benchmark for the development of the ICGE
model. The SAM consists of six accounts—factors, households, production
activities, government, capital, and the rest of the world—and is treated as an initial
equilibrium for the ICGE model. The values of some parameters are adjusted to
replicate the equilibrium conditions for the base year, 2005. Table 11.1 summarizes
major equations in ICGE model.