1.5 Market Clearance

Having defined technology, preferences and compensated demand functions, we now may turn to the market clearance conditions.

• Domestic Output

  Domestic output equals demand for intermediate inputs to production, public sector use, final consumer demand plus domestic investment:¹¹

  

  in which a_ir^D,I, a_ir^D,G, and a_ir^D,C represent the compensated demands for domestic inputs by submarket, each of which are functions of p_ir^D and p_ir^M.

• Imports

  Aggregate supply of imports, defined by the Armington aggregation across imports from different regions must equal aggregate import demand for intermediate, public and private consumption:

  

  in which a_ir^M,I, a_ir^M,G, and a_ir^M,C represent compensated demands for imported inputs by submarket, each functions of p_ir^D and p_ir^M.

• Exports

  Export supplies equals import demand across all trading partners plus demands for international transport:¹²

  

  In the second equation a_irs^M represents the unit demand for region r output per unit of region s aggregate imports.

• Armington Aggregate Supply

  The model includes supply-demand conditions for the Armington composite goods entering intermediate demand, public and private demand, as has already been specified above in the equations defining ID_ir, GD_ir and CD_ir.

• Primary Factors

  Primary factor (labor, capital, land, resource) endowment equals primary factor demand: