NATURAL RESOURCE SUPPLY CONSTRAINTS AND REGIONAL ECONOMIC ANALYSIS: A COMPUTABLE GENERAL EQUILIBRIUM APPROACH

ABSTRACT

Traditional, fixed-price (input-output) economic models provide a useful framework for
conceptualizing linkages in a regional economy. However, inherent limitations with input-output
(IO) methods can severely restrict the analyst’s ability to deduce valid prescriptions for public
policy and economic development when examining the impact changes in the availability of
natural resource supplies have on regional economic activity. A superior approach using regional
computable general equilibrium (CGE) models is presented. In a severe CGE scenario,
elimination of 80 percent of federal log supplies to a timber dependent region resulted in the loss
of 2,532 jobs (4.2 percent of regional employment), and $60 million (3.3 percent) of household
income. Results of the same shock with an input-output model of the region indicated a loss of
3,453 jobs and $83 million in household income. The IO estimate of job loss was 36 percent
higher than the CGE estimate, while the IO household income loss was 38 percent higher than the
CGE estimate. For less severe scenarios (a 50 percent reduction in federal log supply) the IO
estimates of income and employment loss were larger than the CGE estimates by between 60 and
70 percent. Study results indicate an upward bias in estimated loss of regional income and jobs
using IO methods.

Keywords: Regional economics, computable general equilibrium models, input-output models.

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