Macroeconomic Imbalances: A Multiregional General Equilibrium Analysis

Abstract

Abstract This article analyzes regional and sectoral consequences of recent federal budget and trade deficits. A multiregional computable general equilibrium (MCGE) model is developed in which regions differ in technology, factor endowments, tax rates, government expenditure patterns, and trade relationships. An application to Virginia and the rest‐of‐the‐United States indicates that traditional sectors (agriculture, forestry, basic wood products, mining, textiles, and apparel) bear a greater burden of adjustment to macroeconomic imbalances than do other sectors. The analysis demonstrates that seemingly aspatial national policies may shift the geographic distribution of national output and income.