CGE (Computable General Equilibrium) simulation models are the best way to evaluate the short and long run regional economic effects of projects. Their main idea is that in the regional economy "everything affects everything". The RegFin models, developed at the Ruralia Institute of the University of Helsinki, broadly describe the relationships and linkages of the regional economy. They are suitable for many research topics because they are flexible. Changing the model by adding new details and data is easy.
Susanna Kujala, Master of Administrative Sciences (Regional Studies) and doctoral student (second from the right), carries out the RegFin projects. Susanna does the RegFin simulations, interprets the results and writes the reports.
Outi Hakala, Master of Science (Business Administration), Master of Science (Agriculture and Forestry, Environmental Economics) and doctoral student (right) is responsible for compiling the RegFin model database and gathering the additional information for each research application. In addition, she participates in doing the RegFin simulations, interpreting the results and writing the reports.
Urszula Zimoch, Master of Science (Economics) and doctoral student (Statistics) (centre), coordinates the international affairs at the Ruralia Institute. Urszula identifies interesting Horizon2020 projects and consortiums in which Ruralia and the RegFin team could participate. She also assists in applying for funding from the Academy of Finland.
Jouko Kinnunen, Doctor of Economic Sciences and principal investigator (left), works for Statistics and Research Åland (www.asub.ax). He is the developer and the programmer of the RegFin model as well as a discussion partner of the RegFin team. Jouko has a vast experience in CGE analysis in both domestic and foreign research projects. His expertise supplements the RegFin team’s capabilities especially in comprehensive projects in which the model structure needs to be changed.
Hannu Törmä, Doctor of Economic Sciences (second from the left), was the team leader for several years. He has undertaken pioneering work in Computable General Equilibrium (CGE) research in Finland. After a celebratory seminar in December 2019, Hannu retired from his wor as a principal investigator and professor. Nowadays, Hannu supports the RegFin team as an expert and visiting scholar.
Computable General Equilibrium (CGE) simulation models are the most advanced method for studying the effects of changes in regional economic conditions. The RegFin simulation model and its dynamic version RegFinDyn were developed at the Ruralia Institute of the University of Helsinki. The name of the models is an abbreviation of The Regional model for Finland. RegFin is suitable for research questions where the time dimension is not relevant. The RegFinDyn model version calculates the impacts of each year over a certain period. Compared with the older linear techniques, the CGE simulation methods provide a more precise and comprehensive picture of the regional economic impacts caused by the phenomena being studied. The RegFin models have been influenced by the Australian TERM model (Professor Mark Horridge, Victoria University, Melbourne, Australia) which has been complemented with the modules needed in research applications. Mark is the mentor of our RegFin team, and stays in contact with us by email and social media. He has visited Seinäjoki several times to develop the regional model. Hannu, in turn, has visited Mark three times for consulting.
RegFin models describe the decision logic of economic actors such as producers, consumers, investors and the public sector. The models are based on established theories in micro- and macroeconomics. For instance, the model considers the behaviour of producers and consumers as nonlinear in regard to production quantities and incomes and takes into account the relative prices affecting the behaviour. A special feature is that the resource constraints, like the adequacy of labour, land and capital, are considered when calculating the impacts.
RegFin models may cover various Finnish Regions from the NUTS1 (Mainland Finland and Åland) to NUTS3 (provinces) level and further to the LAU1 and LAU2 (municipalities) levels. Likewise, the model may cover several industries, depending on the availability of the regional accounts data provided by Statistics Finland. It is possible to define 30 industries at the NUTS3 level and 18 industries at the LAU1 level. In Finland, the NUTS3 regions include 19 provinces and therefore the comprehensive provincial model has a 19 x 30 dimension. The broadness of the regional model is not a problem as regions and/or industries may be aggregated if necessary. It is also possible to create new industries by dividing the so-called mother industry. This kind of division requires information on the structure of the sub-industries.
A research application is feasible when 1) the research question can be described as a change occurring at a regional and industrial level, 2) the value chain of the phenomenon is known and 3) the additional data describing the changes in the region’s economic conditions is available.
We have created regional models for Finland as well as for the European Union and its member states. In addition, we have developed a regional model for Sweden.
The structure of the RegFin simulation model is as follows:
The model describes the interaction between various economic actors. The main idea is that in the regional economy “everything affects everything”. The firms produce commodities (goods and services). For the production, they need intermediates – raw materials that they acquire from commodity markets. The firms need also labour and capital (machinery, equipment, means of transport, buildings, warehouses, land etc.) which are acquired from the markets for factors of production. The production of firms comprises the domestic supply that meets domestic demand in commodity markets. If domestic supply exceeds domestic demand, the excess supply is exported. If domestic supply does not meet domestic demand, goods and services are imported from abroad. The total demand (domestic and export demand) must equal to the total supply (domestic and import supply).
The factors of production earn capital and labour income. A portion of the labour incomes is paid to the public sector as consumption taxes. The net labour incomes of consumers finance their private consumption, i.e. the purchases of goods and services from commodity markets. The firms pay production taxes to the public sector. The consumption and production taxes form the incomes of the public sector. The majority of these incomes are expended on public consumption, i.e. the purchases from commodity markets. The capital income received by the factors of production are saved, and they finance the public sector and private sector investments. Domestic savings must equal domestic investments so that all of the investments are feasible. The active balance of foreign trade (i.e. when exports exceed imports) creates foreign savings which supplement domestic savings and make it possible to have larger domestic investments.
Another essential principal of the model is the competition in the markets for commodities, factors of production and foreign trade. The domestic and imported varieties compete in the markets for commodities. The factors of production are partly substitutive which creates competition in the markets for the factors of production. Domestic goods and services compete for customers on the markets for commodities and foreign trade. The relative prices of the factors of production and of commodities are crucial in regard to competition. The investment options compete with one another and the investments are allocated to industries that have the relatively highest return on investment.
Pekka Peura, Ari Haapanen, Kaarina Reini & Hannu Törmä
Regional impacts of sustainable energy in western Finland
Journal of Cleaner Production 187 (2018) 85-97
Olli Ruokolainen, Timo Suutari, Jari Kolehmainen, Susanna Kujala & Törmä Hannu
Pitävä ote kulttuuritoimintojen aluetaloudellisista vaikutuksista ja merkityksistä? Tapauksena Seinäjoen rytmimusiikkiklusteri
Alue ja ympäristö 1/2016, s. 95-110, 2016.
Anne Matilainen, Susanna Keskinarkaus & Törmä Hannu
The Economic Significance of Hunting Tourism in East Lapland, Finland
Human Dimensions of Wildlife, 2016.
Törmä Hannu, Kujala Susanna & Jouko Kinnunen
The employment and population impacts of the boom and bust of Talvivaara mine in the context of severe environmental accidents – A CGE evaluation
Resources Policy, Vol. 46, pp. 127-138, 2015.
Rutherford Thomas F. & Törmä Hannu
Efficiency of Fiscal Measures in Preventing Out-migration from North Finland
Regional Studies, Vol. 44.4, pp. 465-475, 2010.
Törmä Hannu & Heikki Lehtonen
Macroeconomic and welfare effects of the CAP reform and further decoupling of agricultural support in Finland: A CGE modelling approach
Food Economics - Acta Agricult Scand C, 2009; 6: 73-87.
Do Development Projects of Small Towns Matter, and Can CGE Help
Spatial Economic Analysis Journal [Spatial Economic Analysis Vol. 3, No. 2, June 2008, 247-268].