General equilibrium modelling in South Africa : an overview and appraisal

Abstract

Since the 1990s, there has been a considerable increase in the use of computable general equilibrium (CGE) models in South Africa to study a variety of policy issues, specifically, development plans, agricultural programmes, tax policy and international trade. This study asks: What is the state of computable general equilibrium modelling in South Africa after more t h a n a decade of growth and development and what is the way forward? Answering the above questions is both relevant and significant for two reasons. The first is that such an appraisal can help pave the way forward for general equilibrium modelling in general. The advantages of CGE models for policy analyses, compared to traditional macroeconomic models, are now widely acknowledged. General equilibrium models allow for consistent comparative analysis of policy scenarios and they incorporate microeconomic mechanisms and institutional features within a consistent macroeconomic framework, and avoid the representation of behaviour in reduced form. This allows analysis of structural change under a variety of assumptions. The second reason pertains specifically to policy challenges facing South Africa and the modelling thereof. The CGE models of the 1990s were used to examine the issues of the day such as macro stability and the opening up of the economy. An appraisal of the models will indicate their usefulness in policy formulation then and now. Currently the challenges have shifted to the labour market, environmental questions and sub-national issues and a timely overview may help to indicate the way forward for CGE modellers.