ABSTRACT

This chapter discusses that in order to do realistic policy assessment, it is necessary for us to go beyond economic base and input/output models. It introduces features into the models which will allow some response: of exports to changes in the relative cost of doing business, of migration to shifts in economic conditions in the area and of the relative use of factors of production to changes in their relative costs in the production process. The objective of policy modeling is clearly the accurate assessment of the short and long term effects of an external event on a regional economy. The chapter also discusses the strengths and weaknesses of the Input/Output (I-O) framework for models to be used in economic development analysis, and how one can build onto the I/O framework. It suggests that some of the simplifying assumptions made in standard I/O work are quantitatively important to the results that one gets when using a model for policy simulation.