The importance of the regional/local dimension of sustainable development: An illustrative Computable General Equilibrium analysis of the Jersey economy

Abstract

This paper uses a multi-period economic-environmental Computable General Equilibrium (CGE) modelling framework to analyse local sustainability policy issues. Our focus is the small, open, labour-constrained regional economy of Jersey. The case of Jersey is of particular interest for two main reasons. The first is the unusually low degree of geographical labour market integration for such a small regional economy. This motivates our treatment of labour as a region-specific factor of production. The second is the availability of high quality, Jersey-specific economic-enviromental data. We employ CGE model simulations to track the impact of changes in population on a number of energy-consumption and pollution indicators in a recursive dynamic framework under alternative hypotheses regarding economic conditions over the time period under consideration. In the case of Jersey, we find that household consumption is the key factor governing the environmental impact of economic disturbances. Therefore the analysis includes an examination of the sensitivity of the simulation results to different assumptions affecting the wage elasticities of labour demand and supply, and the speed of adjustment to equilibrium on the responsiveness of household income to shifts in labour supply.