Advancing Computable General Equilibrium Analysis (CGE) of the Economic Consequences of Terrorism

Principal Investigator: Peter Dixon

Other Researchers: James Giesecke, Maureen Rimmer, George Verikios, Glyn Wittwer


CREATE has evaluated several modeling approaches to estimating the national and regional consequences of terrorist attacks. In 2008 they utilized the leading regional/national econometric package, REMI, to analyze the economic impacts of a shutdown of the US borders to trade, travel and tourism in the face of a public health threat or terrorist attack. REMI is based on input-output theory.  CREATE found that REMI’s input-output approach had significant shortcomings for cases of major shocks to the economy that involve issues of interregional and international competition.  Progress has been made by CREATE researchers in improving input-output models in the areas of interregional interactions (NIEMO) and some incorporation of resilience considerations (primarily Flex-NIEMO).  However, I-O remains limited in many applications due to its inherent linearity, lack of behavioral content, and inability to represent the detailed workings of markets.  On the other hand computable general equilibrium (CGE) modeling has been successfully applied to a number of terrorist scenarios and has the capability to be applied to a broader range of applications than any of the alternatives.  This led CREATE to seek collaboration with Peter Dixon at the Centre of Policy Studies (CoPS) at Monash University, Australia.  CoPS has pioneered many advances in CGE modeling (Dixon et al., 1982; Dixon and Rimmer 2002, Dixon et al. 2013a) and has a strong record of supplying policy-relevant modeling to U.S. government agencies including the International Trade Commission and the Department of Homeland Security, Commerce, Agriculture, Energy and Transportation. Much has been accomplished by the collaboration between CREATE and CoPS.  This includes: analysis in the CGE framework of the economic implications of resilience; the elaboration of dynamic elements including quarterly modeling rather than the traditional annual time frame; and an enormous expansion in both the industry and regional detail in CGE models.  Interactive research between CREATE and CoPS has been facilitated through visits by Peter Dixon, Maureen Rimmer, James Giesecke and George Verikios of CoPS to CREATE and by Adam Rose and Isaac Maya to CREATE.