Research 350 - NZ Transport Agency

2. APPROACHES TO ASSESSING NATIONAL ECONOMIC BENEFITS
unlikely that CGE modelling can provide credible estimates of national employment
effects. (BTE 1999, pp. 51-53).
• While some studies focus on increases in consumption expenditure as a measure of
project benefit, others focus on outputs such as GDP and employment. A focus on
measures such as GDP or employment can be seriously misleading, since as suggested
above, estimating employment effects are unlikely to be credible and there is a
distinction between economic impacts, such as increased GDP, and the economic
efficiency measures assessed by SCBA.
• The time, cost and complexity involved in constructing CGE models can be
considerable. The increase in accuracy promised by such models must be traded off
against the degree of increased model accuracy. It is notable that the UK Government
response to SACTRA (DfT 1999) rejected SACTRA’s proposal for the development of a
CGE model, essentially on these grounds (SACTRA 1999).
• The extent to which CGE models can truly be distinguished from ‘partial equilibrium’
approach of SCBA is less then sometimes claimed. CGE models incorporate their own
(varying) assumptions regarding exogenous inputs and typically operate at a broad
(rather than geographically specific) level. For example, the ESSAM model used by ACG
to model New Zealand road projects (ACG 2004) assumes stocks and government
consumption are set exogenously (ACG 2004, p. 64). Australian models such as MMRF
and ORANI assume perfect competition in product markets (as does SCBA).
Apart from these assumptions, such models typically cannot allow for the ‘feedback
effects’ of specific issues, such as the strategic pricing behaviour by transport
competitors within particular geographical regions, any more than can SCBA (BTE
1999, pp.109-110). Given the need to use exogenous variables in any case, and the
necessarily broad nature of the approach, the reasoning in adding on the additional
complexity entailed in CGE modelling is debatable.
• A corresponding point is that many CGE models are comparative static, rather than
dynamic. That is, they omit inter-temporal relationships between endogenous
variables. For example, a dynamic model might link changes in capital stock in one
period with past levels of investment and savings (using specified elasticity measures)
where all of these are defined as endogenous variables.
Models commonly used in Australian transport appraisals, such as MMRF and ORANI
are comparative static. The ESSAM model used by ACG to model New Zealand road
projects would also appear to lack some dynamics. For example, government
consumption is either a fixed percentage of GDP or determined exogenously.
A practical implication of the lack of dynamic structure in CGE models is that the
results may be distorted when compared to the outputs of SCBA, as discussed below.
In addition, Docwra and West note that CGE models may be particularly poorly suited
to analysing the impacts of transport investments such as road developments due to
their lack of inter-temporal relationships. This is because road investments (and, by
extension, most other transport investments) typically have a ‘long tail’ with respect to
construction expenditures and flow-on impacts within the local area. Thus, a new
arterial road to a port will affect local and global economies for many years, as local
development gradually takes advantage of the new facilities. As CGE models often lack
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