Thematic and Spatial Concentration of CGE Models’ Application to Policy Research

Many countries in the developing world lack the required capacities and data to provide evidence-based policymaking. As a consequence, they apply a trial-and-error approach to their exchange rate, trade and domestic tax policies, among others. Some countries base their policies on the experiences of other countries that are not necessarily similar in terms of economic structure, sectoral linkages and trade openness. This could be partially justified as well by the difficulty of basing economic policies on researched evidence due to the forward and backward linkages that prevail in any economy, which necessitates ex post and ex ante policy impact analysis on the entirety of economic actors. This reality was recognized during the 1960s by researchers and Johansen (1960) was the first to envisage a solution for it in the form of what is currently known as Computable General Equilibrium (CGE) models. The importance of CGE models rests on their ability to provide economy-wide impact assessments with huge flexibility in capturing a detailed representation of the economy depending on the availability of data. Despite the widespread use of CGE models, no comprehensive review of their applications to the different geographical regions of the world, the different types of problems they contributed to and the different disciplines they addressed is available. This kind of review is expected to show their usefulness and identify the regions, themes and disciplines that lack their applications and, hence, to direct future research. These are the main objectives of this study, which starts by exploring the history of CGE models, including the intensity of their applications worldwide and the areas of research in which they have been applied through the time, with a special focus on the period between 1980 and 2014. The study also explores classifying CGE applications by the kind of services they have provided to advise policymaking, especially in developing countries. Afterwards, the study focusses on four countries to provide deep assessments of CGE applications and identify areas for future research using CGE models. The selected countries are Palestine, Israel, the Sudan and Nigeria. The selection of these countries is related to research projects in which the author is involved, as well as personal interest. The study reviews all the CGE applications to the selected countries, their areas of applications and the type of problems they addressed.