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assumptions implicit in the SOE approach: the region takes the world prices as given and differences in products by origin are accommodated through the Armington functions. Since the bulk of the region's trade is with the rest of the U. S., the assumption of "world" prices is a reasonable one. In keeping with the SOE assumptions, the flow of funds from outside the region are fixed at the baseline levels. This condition is based on the fact that the regional economy, while large in absolute terms, is a fairly small part of the national economy. Domestic consumers are assumed to have a CES utility function over domestic produced and imported goods (for a given category of goods): x = A C [0 u.-p, + (I -0) XD .-p'] -lip, , , r""", ; I where At and OJ are constants estimated from the baseline data and a is the elasticity of substitution between domestic and imported goods and OJ = II ( I + pJ. Consumers are assumed to choose a mix of domestic and imported goods which minimizes the cost of obtaining a level of utility. On the supply side, a comparable construction yields a CET function between domestically consumed (XD;) and exported (Ej) goods: X;D = A/ [Y,E;8, + (I -Y;) XD;8,]1I8, where J(D is domestic output, A/ and Yi are constants estimated from the baseline data, and the elasticity of transformation between domestic consumption and exports is w; = 1/(1-8;). Produ~ers are assumed to maximize revenues from a given level of domestic production by allocating this domestic and export sales. For a regional economy, the exchange rate is 1.0 (most of the trade appears as transactions with the rest of the U.S.) so export and domestic prices are identical. The CGE model describes a regional economy within the u.S. economy. For a regional economy there are no trade deficits. Any difference between real imports and real exports is 19