Assessing the Economic Impact of an Agricultural Export Shock on the Washington Economy: A Tale of Two Models

The results of an economic impact analysis with a regional input-output (IO) model are compared with results from a regional computable general equilibrium CGE) model. The I0 model embodies a number of restrictive assumptions. These assumptions are consistent with the long run equilibrium of the economy where there is no capacity constraint for production, fixed coefficients in production, and no price changes or due to Leontief technology, and fixed input prices. For all of these reasons input-output results are often viewed as over estimates of regional supply response given the lack of effective regional supply constraints. In this situation, regional CGE models serve as a better alternative because of their flexibility to mimic various technology and factor market condition characteristic of real world regional economies. In this study we summarize the results of an assumed export shock on Washington economy under an input-output model and under a regional CGE model. Further, we simulate our CGE model under various factor market constraints and behaviors. We show that contrary to the conventional wisdom, the positive secondary impacts of increasing agricultural exports are usually actually larger with a regional CGE model than estimates of secondary impacts of the same shock estimated with a regional IO model.