Regional economic assessments and the RegFin models

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, Doctor of Administrative Sciences (Regional Studies) and Postdoctoral researcher (on the right in the photo), carries out the RegFin projects together with Outi Hakala. Susanna is especially responsible for the RegFin simulations, interpretation of the results and writing the reports.

Outi Hakala, Master of Science (Business Administration), Master of Science (Agriculture and Forestry, Environmental Economics) and doctoral researcher (on the left in the photo) 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.

Hannu Törmä, Doctor of Economic Sciences, 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 work 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 which has been complemented with the modules needed in research applications.

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 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.

Kalle Karttunen, Anssi Ahtikoski, Susanna Kujala, Hannu Törmä, Jouko Kinnunen, Hannu Salminen, Saija Huuskonen, Soili Kojola, Mika Lehtonen, Jari Hynynen & Tapio Ranta

Regional socio-economic impacts of intensive forest management, a CGE approach

Biomass and Bioenergy 118 (2018) 8−15.

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.


Other publications, projects and activities can be seen at the research portal (click on the team members’ names below).

Susanna Kujala

Postdoctoral researcher

Outi Hakala

Doctoral researcher

Hannu Törmä

Visiting scholar