This chapter is about the issues that modellers confront in deciding whether to apply single-region or multi-region general equilibrium models and, when multi-region models are used, the inherent differences in data and modeling methods that modellers face. The chapter provides an overview of the key data and conceptual issues involved in moving from single-region to multiregion models, such as the organization of trade and protection data, assumptions about product differentiation, and implications of alternative macroeconomic model closures.
The single-region and multi-region approaches are directly compared for a particular example involving the Uruguay Round. During the course of these negotiations, many countries sought quantitative guidance on the likely impact of the agreement on their economies. Because of limited data and modeling capacity, most of these countries conducted this analysis by using either single-region applied general equilibrium (AGE) models or multi-region partial equilibrium models. In our example, we ask the question, How much additional analytical insight would have been gained by having access to a multi-region model? The answer obviously depends on the country in question. We focus our analysis on Korea, which permits us to draw some tentative conclusions about the value added from multi-region AGE models.
Conceptual Issues in Multi-Region AGE Models
International trade is the key inter-regional link in multi-region AGE models, even when these models are not explicitly oriented toward trade issues. “Current account” relations between regions overshadow their counterpart “capital account” relations partly because of the issues being studied, but also because the numerical modeling of financial and asset-related international flows is less well-developed.