2014 Volume 70 Issue 4 Pages 245-258
In the last two decades, a large number of studies have attempted to develop spatial computable general equilibrium (SCGE) models based on new economic geography (NEG). Although these studies provide SCGE models with agglomeration economies, their framework is oversimplified for computational purposes and inconsistent with NEG. This study develops an SCGE model consistent with NEG that has the following two characteristics to overcome the shortcomings of previous studies: 1) this model considers vertical linkages (input-output linkages) as in Venables1), which ensures the theoretical consistency; 2) the stable equilibrium that emerges after implementation of policies can be obtained. Furthermore, we present a numerical example to demonstrate that our model can be applied to practical applications.