Research 350 - NZ Transport Agency

4. APPROACHES TO ASSESSING REGIONAL ECONOMIC AND OTHER DISTRIBUTIONAL EFFECTS
SACTRA’s recommendation that I-O be used to help analyse impacts on regional economies
(DfT 1999, para. 75).
However, as is the case on a national level I-O impacts should be seen as complementary
rather then supplementary to SCBA. That is, SCBA should form the basis of the regional
analysis (with regard to the ringfencing issues noted above). The outputs of the I-O model
(i.e. GDP/GSP, income and employment) could then provide an additional set of data of
interest to policymakers. Further, the issues relating to multiplier estimation and model
constraints should be made transparent in the analysis.
4.3.3 CGE analysis
In theory, CGE analysis offers a more comprehensive approach to the estimation of regional
economic effects than I-O, given its allowance for the operational of at least some economic
constraints.
In practice, the construction of regional CGE models is extremely problematic. The main
problem is that of obtaining appropriate data on a regional scale.
In many cases, regional CGE models have been developed within national models. This can be
done through a ‘bottom up’ or ‘top down’ approach.
The bottom up approach is based on the integration of sub-national I-O tables in combination
with parameter estimates for location choice equations. However, as noted above, the
derivation of I-O tables is a process which is open to considerable question, while the
estimation of location choice parameters is often conjectural (BTE 1999, pp. 137-138).
The top down approach is rarely used and involves defining national industries which drive
demand for local industries. However, as it assumes that the location of ‘national industries’
is given, its utility for assessing transport investments is limited (BTE, pp. 136-137).
As noted above, past work has indicated that CGE models will often converge on I-O solutions
at the regional level. Thus considerations of parsimony weigh against use of CGE within a
regional context. This is also the conclusion of Docwra and West, who note that the
difficulties of parameterising a large number of coefficients and parameters in the absence of
local data will more then offset the increased model sophistication, and that applying CGE to
regional economics may not be ‘a very efficient use of resources’ (Docwra and West 1999, p.
941). Likewise, despite their general support for CGE (as opposed to I-O) modelling, Dwyer,
Forsyth and Spurr agree that CGE modelling, while feasible, is ‘costly and unwarranted’ at the
‘local level’ 30 .
It is therefore considered that CGE analysis does not offer a practical approach to the
modelling of regional economic impacts of transport investment in most cases.
4.3.4 Other approaches
Some analysts have suggested broad guidelines for the assessment of regional economic
effects, without necessarily relating these to a specific modelling approach. For example,
30 Note however, that these authors see CGE modelling as having a role to play at the ‘State-wide’ level
(Dwyer, Forsyth & Spurr 2004, pp.313-314). This raises the question of application within a New Zealand
context. Since the authors comments seem to relate to Australia, it is likely that CGE analysis is better
applied to areas with larger economies and populations than those of most New Zealand regions (i.e.
Australian states).
97