Further evidence on the law of factor proportionality in multiple households closed CGE models

ABSTRACT

This article provides additional evidence that factor contents of different consumers’ consumption bundles computed from multiple households closed Computable General Equilibrium (CGE) models are approximately proportional. This empirical regularity has been observed up to now for a total of 11 CGEs for very diverse countries, and we therefore state it as law. It implies that these models display price rigidity with respect to endowment re-allocations, an observation which has broad implications for their capacity to capture general equilibrium effects.

KEYWORDS:

• CGE
• applied general equilibrium
• factor proportionality
• price rigidity

JEL CLASSIFICATION:

• C62
• C68
• D58

Acknowledgments

Yves Balasko would like to thank the warm hospitality and generous financial support of the SPP fund at the Department of Economics and Related Studies (University of York), of the Seedcorn fund also of the University of York and, in Rio de Janeiro, of UERJ and PUC-Rio de Janeiro. Octavio Tourinho thanks the financial support of PROCIENCIA fund, sponsored by UERJ/FAPERJ and of CNPq, through grant 459893-2014.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ This supporting document along with the data files and worksheet calculations to produce the closed economy SAMs can be downloaded at www.researchgate.net after having searched for the publications of Octavio Tourinho, under the name ‘Computation of SAMs for closed CGE models.pdf’, ‘SAMs aggregation.xls’ and ‘Simple SAMs.xls’.

Additional information

Funding

Yves Balasko would like to thank the generous financial support of the SPP fund at the Department of Economics and Related Studies (University of York), of the Seedcorn fund also of the University of York and, in Rio de Janeiro, of UERJ and PUC-Rio de Janeiro. Octavio Tourinho thanks the financial support of PROCIENCIA fund, sponsored by UERJ/FAPERJ and of CNPq, through grant 459893-2014.