Handling Market Imperfections in a Spatial Economy: Some Experimental Results II

The Brazilian economy, with significant differencesin the distribution of economic activity acrossregions, presents a challenge to models that adopt aperfectly competitive market structure. This paperemploys an interregional CGE model of the Brazilianeconomy to explore the long-run impacts ofpositing changes in transportation structure andscale economies on regional and national welfare.In particular, the transportation cost structure ismodeled explicitly as a margin rather than in an icebergform; scale economies are addressed as a wayto mimic the imperfectly competitive structure ofthe Brazilian economy and to capture some of thepotential impacts of core-periphery relationshipsin production structure. This paper complementsa previous study by Haddad and Hewings (2005)that focused on the short-run implications of similarexperiments.