Computable general equilibrium modelling can capture interactions across industries, households, labour markets, trade and government. This makes it valuable for policies or investments with material economy-wide effects.
Situations where CGE adds value
CGE is particularly useful when a shock is large, persistent or likely to affect prices, wages, trade, migration, production patterns or resource allocation across sectors.
Examples include major tax reforms, trade policies, large infrastructure programs, industrial strategies, significant tourism expansions and long-term urban-development scenarios.
When a simpler method may be better
For small projects with limited market interaction, a transparent partial analysis may be more proportionate. Input-output models can illustrate supply-chain linkages, although their fixed-price and fixed-technology assumptions must be clearly recognised.
Econometric methods may be preferable where the central question concerns observed relationships, forecasting or causal inference rather than economy-wide resource reallocation.
Good modelling starts before the model
The research question, counterfactual, time horizon, closure assumptions, labour-market treatment and funding mechanism often matter more than model complexity. Results should be tested through sensitivity analysis and communicated with limitations clearly stated.