In this paper we use a fully operational interregional (interstate) CGE model implemented for the Brazilian economy, based on previous work by the author and associates, in order to assess the likely regional effects of transportation policy changes in Brazil. Among the features embedded in this framework, modeling of external scale economies and transportation costs provides an innovative way of dealing explicitly with theoretical issues related to integrated regional systems. The model is

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... brated for 27 regions. The explicit modeling of transportation costs built into the interregional CGE model, based on origin-destination flows, which takes into account the spatial structure of the Brazilian economy, creates the capability of integrating the interstate CGE model with a geo-coded transportation network model, enhancing the potential of the framework in understanding the role of infrastructure on regional development. Further extensions of the current model specification for integrating other features of transport planning in a continental industrializing country like Brazil are discussed, with the goal of building a bridge between conventional transport planning practices and the innovative use of CGE models. In order to illustrate the analytical power of the integrated system, we will present a set of simulations, which will evaluate the regional impacts of a physical/qualitative change in the Brazilian road network (i.e. a highway improvement), in accordance with recent policy developments in Brazil. Rather than providing a critical evaluation of this debate, we intend to emphasize the likely structural impacts of such policies. We expect that the results will reinforce the need to better specifying spatial interactions in interregional CGE models.