16th International Input Output Conference, Istanbul 2007

Regional CGE Model Embodying Productivity Gains

Giorgio Garau[*]() and Patrizio Lecca* ()

The economic literature has often treated separately the generation of TFP and the distribution of productivity gains among economic agents. In his seminal paper Fontela (1989) has stressed the need ofincluding in a comprehensive growth model both the generation of TFP and the transfer of TFP gains. Fontela (1989) pointed out that: “A growth process does not only imply a path of generation of TFP, it also includes an internal transfer between industries of the gains of TFP”, that is to say: “it should explain the generation of TFP as well as its distribution”.

By followingFontela’s assertions we attempt to operationalise his words. A productivity model and the distribution of productivity gains are integrated ina multi-sectoral CGE model in which the technology will be themost important variable in explaining relationships on the supply side. As productivity improvement and the distribution of productivity surplus are importantfactors for regional economic growth with a regional CGE model we try to investigate how an increase in TFP in a given sector should affect the rest of the economy throughout the analysis of the transfer of productivity gains.

The CGE calibrated on the SAM of Sardinia (Garau and Lecca, 2005) will embody not only the traditionalblocks of demand, supply and income distribution but also an additionalblock in order to modelling regional technical change. The TFP equation is derived from the H. van Meijl work (1997) in which the TFP growth is dependent on the expenditure in R&D, pure knowledge spillovers, investment rent spillovers, intermediate rent spillover and a constant trend.The model incorporates as well those mechanisms that allow to identify the transfer of productivity gains by following the Fontela’s methodology (1989, 1994, 2003), because they are fundamental in order to better understand the growth path.

The CGE model will be able to capture the shortand long run effects (together with the transitional pathway) of an increase inproductivity and then forecasting the transfer productivity gains between economic agents.Such model could be very helpful for the policy makerwhen the aim is both the increase the productivity and the final destination of thecorresponding welfaregains.For example, if theregional government would invest in R&D, the analysis of TFP surplus can suggestus which sector would be able to generate the highest TFP and the surplus available forthe distribution for the others agents.

References

Fontela E., (1989). ”Industrial Structure and Economic Growth: an Input-OutputPerspective,” Economic System Research, V. 1, N.1.

Fontela E. (1994), ”Inter-industry Distribution of Productivity Gains”. EconomicSystem Research, V. 6., N. 3.

Antille G. and E. Fontela, (2004), “The Terms of Trade and the International Transfers of Productivity Gains”. Economic System Research, V. 15, N.1.

Garau G. and Lecca P., (2005). La costruzione di una SAM per la Sardegna. mimeo.

H. van Meijl (1997) ”Measuring Intersectoral Spillover”. Economic System Research,V. 9, N.1.

[*] University of Sassari, Dipartimento di Economia Imprese e Regolamentazione, via Torre Tonda, 34 – 07100 Sassari, Italy. Phone: +393209225635.