In Memory of Leif Johansen: The World’s First CGE Model and Its Application to Russia

Abstract

Perhaps the best way to honor Leif Johansen’s legacy as a theorist on the fortieth anniversary of his death is to show that his ideas are still pertinent and able to inspire new research. This paper adapts the world’s first CGE model for MSG, which he created in the late 1950s, to current Russian statistics. The CGE model has been used to calculate the consequences to be anticipated from two groups of scenarios: 1) accession to Russia of four new regions in 2022; and 2) a complete trade blockade of Russia due to exacerbation of the crisis in Ukraine. During preparation of the input data, balancing of the input-output tables was achieved by developing an algorithm based on a certain discrete analog of the elastic filter algorithm. This approach can also be used to prepare input data for other single-region CGE models. The version of MSG that was constructed for Russia can be used for teaching university students, as a BOTE model, or for debugging more complex CGE models, or as an auxiliary tool for estimating import substitution frontiers, country production frontiers or various structural parameters of CGE models. Despite the more than six decades that have passed since its inception, the MSG model still does not look outdated in essence and contains some elements that are sometimes undeservedly overlooked in a number of modern CGE models.