Development of a Multiregional Dynamic Applied General Equilibrium Model for the Japanese Economy - Regional economic analysis based on a forward-looking perspective (Japanese)

Kanemi Ban

Discussion Papers (Japanese) from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: In order to analyze factors that influence trends in regional economies, I develop a multiregional dynamic applied general equilibrium model which consists of eight regions and 22 industries. By conducting numerical simulation I evaluate the impacts of changes in economic environments on regional economies and the Japanese economy as a whole. The changes in economic environments addressed in this paper include the correction of disparities in fiscal burdens and benefits, a declining working population, declining corporate taxation, and innovation in transportation and communications technologies. The dynamic applied general equilibrium model used in this paper employs a social accounting matrix based on the interregional input-output table in 2000 as its benchmark data. Behavioral equations for firms and households are derived on the basis of a multistage CES production function and utility function. For its dynamic mechanism, it adopts a framework based on a Ramsey optimal growth model for each region. It should be noted that the model's parameters are hypothetical, and the simulation results are heavily dependent on them. The results of the analysis show that, in view of the very close interdependence between regions, changes in the economic environment have an impact that is not confined to a single region but spreads to others and broadens over time. It should be also noted that through analysis by means of a forward-looking model in which savings and investment are determined within the framework of a dynamic optimal growth model, it is confirmed that future changes in the economic environment have a strong impact on the current economic activity at the time at which they are forecasted. It implies that current trends in regional economies reflect the developments that occur based on the forecasted future changes in the economic environment.

Pages: 52 pages
Date: 2007-11
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Persistent link: https://EconPapers.repec.org/RePEc:eti:rdpsjp:07043

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