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Validation of an R&D-based computable general equilibrium model

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  • Hong, Chanyoung
  • Yang, Heewon
  • Hwang, Wonsik
  • Lee, Jeong-Dong

Abstract

A computable general equilibrium (CGE) model is useful for the calculation of macroeconomic effects caused by policy impacts, but it has been considered a sticking point to evaluate how well the CGE model describes the real economy. Among various possible reasons for the difference between the standard CGE model and the real world, this paper focuses on a limited number of primary input factors and a fixed figure for the calibrated coefficient. A CGE model incorporating research and development (R&D) activity is suggested as an alternative to address the problems with the standard CGE model. The proposed model includes the following two setups: (1) a sector's own knowledge is adopted as a production factor, and (2) others' knowledge is regarded as a source of spillover effect to increase the total factor productivity (TFP) coefficient. This R&D-based CGE model is evaluated on whether its correspondence with reality is better than the standard model that omits the two setups. The two models compute baseline scenarios of South Korean economic growth from 1995 to 2010, and these results are compared to actual data. The results show that the R&D-based model fits better than the standard model in cases where the country has high TFP growth.

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  • Hong, Chanyoung & Yang, Heewon & Hwang, Wonsik & Lee, Jeong-Dong, 2014. "Validation of an R&D-based computable general equilibrium model," Economic Modelling, Elsevier, vol. 42(C), pages 454-463.
    • Handle: RePEc:eee:ecmode:v:42:y:2014:i:c:p:454-463
    DOI: 10.1016/j.econmod.2014.07.014
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    3. Zawalińska, Katarzyna & Tran, Nhi & Płoszaj, Adam, 2018. "R&D in a post centrally-planned economy: The macroeconomic effects in Poland," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 37-59.
    4. Zheng, Qinyue & Wang, Xingmin & Bao, Chunbing, 2024. "Enterprise R&D, manufacturing innovation and macroeconomic impact: An evaluation of China’s Policy," Journal of Policy Modeling, Elsevier, vol. 46(2), pages 289-303.
    5. Zawalinska, Katarzyna & Tran, Nhi & Ploszaj, Adam, 2019. "Planning R&D in a post centrally-planned economy: assessing the macroeconomic effects in Poland," Conference papers 333106, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Katarzyna Zawalińska & Nhi Tran & Adam Płoszaj, 2016. "Planning R&D in a Post Centrally-Planned Economy: Assessing the Macroeconomic Effects in Poland," Centre of Policy Studies/IMPACT Centre Working Papers g-268, Victoria University, Centre of Policy Studies/IMPACT Centre.
    7. Yeongjun Yeo & Sungmoon Jung & Jeong-Dong Lee & Won-Sik Hwang & Yeongjun Yeo, 2016. "Study on the effect of innovation on employment structure and economic growth: A computable general equilibrium approach," EcoMod2016 9524, EcoMod.
    8. Betarelli Junior, Admir Antonio & Faria, Weslem Rodrigues & Gonçalves Montenegro, Rosa Livia & Bahia, Domitila Santos & Gonçalves, Eduardo, 2020. "Research and development, productive structure and economic effects: Assessing the role of public financing in Brazil," Economic Modelling, Elsevier, vol. 90(C), pages 235-253.
    9. Zhao, Xin & Calvin, Katherine V. & Wise, Marshall A. & Iyer, Gokul, 2021. "The role of global agricultural market integration in multiregional economic modeling: Using hindcast experiments to validate an Armington model," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 1-17.
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    Keywords

    CGE model; R&D; Validation; Knowledge; TFP;
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