The national impact of regional policy: policy simulation with labour market constraints in a two-regional computable general equilibrium model

The first step in a comprehensive evaluation of regional policy is to identify its full spatial impact. This involves two tasks. The first is to determine the form and strength of inter-regional linkages. The second is to specify the national constraints within which the system of regional economies operates. In this paper we use simulation results from a two-region Computable General Equilibrium (CGE) model of Scotland and the rest of the UK (RUK) to investigate these issues. The inter-regional linkages incorporate trade and income flows, inter-regional capital mobility and migration. The constraint that we focus on is an overall national population constraint and its impact on regional wage determination. The paper is structured in the following way. Section 2 outlines the AMOSRUK modelling framework. Section 3 describes the alternative labour-market model configurations used in the simulations. Section 4 reports the results for the model simulation and Section 5 is a short conclusion.