The Social Accounting Matrix

In the ‘household utility maximization model’ presented in the last chapter, we used values of coefficients for the utility function and for the factor endowments, assumed on an a priori basis. However, to develop an empirical CGE model, various coefficients and exogenous variables of the model based on real data must be estimated. The estimation process consists of two steps. First, we collect data of the base year and construct a comprehensive and consistent macroeconomic database, called a social accounting matrix (SAM). Next, by using the SAM, we estimate the coefficients and exogenous variables of the model. The estimation method of the latter step is called ‘calibration’. This chapter explains first the structure of a SAM, then how to construct a SAM. The calibration procedure is explained in Chapter 5.