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The Role of Defense Cuts in the California Recession: Computable General Equilibrium Models and Interstate Factor Mobility

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  • Hoffman, Sandra
  • Robinson, Sherman
  • Subramanian, Shankar

Abstract

This study develops a computable general equilibrium (CGE) model to examine the impact of recent defense cuts on California's economy. The study demonstrates use of a CGE model to examine the sensitivity of regional economy models to assumptions about factor migration. The results show that California is indeed sensitive to defense cuts, but that the perceptions of workers and producers about the permanency of the cuts and about other future opportunities in the state economy significantly affect gross state product (GSP) multipliers. Depending on how these perceptions affect factor migration, GSP multipliers can be expected to range from 1 to almost 5.

Suggested Citation

  • Hoffman, Sandra & Robinson, Sherman & Subramanian, Shankar, 1995. "The Role of Defense Cuts in the California Recession: Computable General Equilibrium Models and Interstate Factor Mobility," CUDARE Working Papers 201475, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:201475
    DOI: 10.22004/ag.econ.201475
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    1. David S. Kraybill & Thomas G. Johnson & David Orden, 1992. "Macroeconomic Imbalances: A Multiregional General Equilibrium Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 726-736.
    2. Devarajan, Shantayanan & Lewis, Jeffrey & Robinson, Sherman, 1990. "Policy Lessons from Two-Sector Models," CUDARE Working Papers 198566, University of California, Berkeley, Department of Agricultural and Resource Economics.
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    5. Robinson, Sherman & Hoffmann, Sandra & Subramanian, Shankar, 1994. "Defense Spending Reductions and the California Economy: A Computable General Equilibrium Model," CUDARE Working Papers 198633, University of California, Berkeley, Department of Agricultural and Resource Economics.
    6. Hanson, Kenneth A. & Robinson, Sherman, 1989. "Data, Linkages, And Models: U.S. National Income And Product Accounts In The Framework Of A Social Accounting Matrix," Staff Reports 278155, United States Department of Agriculture, Economic Research Service.
    7. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 651-667.
    8. David W. Roland-Holst, Sherman Robinson and Laura D'Andrea Tyson., 1988. "The Opportunity Cost of Defense Spending: A General Equilibrium Analysis," Economics Working Papers 8871, University of California at Berkeley.
    9. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-1051, September.
    10. Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
    11. Markusen, Ann & Hall, Peter & Campbell, Scott & Deitrick, Sabina, 1991. "The Rise of the Gunbelt: The Military Remapping of Industrial America," OUP Catalogue, Oxford University Press, number 9780195066487.
    12. Pyatt, Graham, 1988. "A SAM approach to modeling," Journal of Policy Modeling, Elsevier, vol. 10(3), pages 327-352.
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    Cited by:

    1. Elena G. Irwin & Andrew M. Isserman & Maureen Kilkenny & Mark D. Partridge, 2010. "A Century of Research on Rural Development and Regional Issues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(2), pages 522-553.
    2. Hoffmann, Sandra & Berek, Peter & Costello, Christopher & Fortmann, Louise, 2000. "Poverty and Employment in Timber-Dependent Counties," RFF Working Paper Series dp-00-52, Resources for the Future.
    3. Bilgic, Abdulbaki & King, Stephen A. & Lusby, Aaron K. & Schreiner, Dean F., 2002. "Estimates of U.S. Regional Commodity Trade Elasticities of Substitution," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 32(2), pages 1-20.
    4. Byers, Steven & Cutler, Harvey & Davies, Stephen P., 2004. "Estimating Costs and Benefits of Economic Growth: A CGE-Based Study of Tax Incentives in a Rapidly Growing Region," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 34(4), pages 1-20.
    5. Berck, Peter & Costello, Christopher & Hoffmann, Sandra A. & Fortmann, Louise, 1999. "Poverty program participation and employment in timber-dependent counties," CUDARE Working Papers 43913, University of California, Berkeley, Department of Agricultural and Resource Economics.
    6. George W. Hammond & Eric Thompson, 2006. "Convergence and Mobility: Personal Income Trends in U.S. Metropolitan and Nonmetropolitan Regions," International Regional Science Review, , vol. 29(1), pages 35-63, January.
    7. Konan, Denise Eby, 2011. "Limits to growth: Tourism and regional labor migration," Economic Modelling, Elsevier, vol. 28(1), pages 473-481.
    8. Harris, Thomas R. & Seung, Chang K. & Darden, Tim D. & Riggs, William W., 2002. "Computable General Equilibrium Modeling Of Rangeland Fires In Northern Nevada," 2002 Annual Meeting, July 28-31, 2002, Long Beach, California 36640, Western Agricultural Economics Association.
    9. David Holland & Abdul Razack, 2006. "Assessing the Economic Impact of an Agricultural Export Shock on the Washington Economy: A Tale of Two Models," Working Papers 2006-11, School of Economic Sciences, Washington State University.
    10. Peter Berck & Sandra Hoffmann, 2002. "Assessing the Employment Impacts of Environmental and Natural Resource Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 133-156, June.
    11. Malik, R. P. S., 2008. "Growth impacts of development and management of water resources," Conference Papers h042935, International Water Management Institute.

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    Keywords

    Production Economics; Public Economics;

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