A Nonlinear Multisectoral Model for Hungary: General Equilibrium Versus Optimal Planning Approach

Recent years have witnessed a shift in nation-wide economic modeling techniques. Parallel to the use of traditional linear models has been the development of more sophisticated nonlinear models, under the name of applied (computable) general equilibrium models. Some of these models have been especially designed to capture the interrelationships of economic, demographic, and spatial processes. This paper investigates the possibilities and expected benefits of incorporating nonlinear multisectoral models of the computable general equilibrium type into the planning methodology of socialist countries. \n \nLinear multisectoral models have become more or less integrated into the complex process of planning in most of the socialist countries. Despite their fundamental conceptual differences the optimal planning models and the computable general equilibrium models exhibit close technical similarities, which make the transfer of modeling techniques feasible. For illustration a tentative nonlinear model is developed for Hungary which combines the concepts and techniques of the above two modeling approaches. The model differs considerably from its Western counterparts and can be viewed as a natural extension of the planning models used in Hungary. The model takes explicitly into account the interaction of real and value variables, emphasizes the foreign trade flows and incorporates demographic and spatial aspects as well.