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Opening a Pandora's Box: Modelling World Trade Patterns at the 2035 Horizon

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  • Lionel Fontagné
  • Jean Fouré

Abstract

Economic projections for the world economy, particularly in relation to the construction of Computable General Equilibrium (CGE) baselines, are generally rather conservative and take scant account of the wide range of possible evolutions authorized by the underlying economic mechanisms considered. Against this background, we adopt an ‘open mind’ to the projection of world trade trajectories. Taking a 2035 horizon, we examine how world trade patterns will be shaped by the changing comparative advantages, demand, and capabilities of different regions. We combine a convergence model fitting three production factors (capital, labour and energy) and two factor-specific productivities, alongside a dynamic CGE model of the world economy calibrated to reproduce observed elasticity of trade to income. Each scenario involves three steps. First, we project growth at country level based on factor accumulation, educational attainment and efficiency gains, and discuss uncertainties related to our main drivers. Second, we impose this framework (demographics, gross domestic product, saving rates, factors and current account trajectories) on the CGE baseline. Third, we implement trade policy scenarios (tariffs as well as non-tariff measures in goods and services), in order to get factor allocation across sectors from the model as well as demand and trade patterns. We show that the impact of changing baselines is greater than the impact of a policy shock on the order of magnitude of changes in world trade patterns, which points to the need for care when designing CGE baselines.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2013-22.

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Date of creation: Jul 2013
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Handle: RePEc:cii:cepidt:2013-22

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Keywords: Growth; Macroeconomic Projections; Dynamic Baselines;

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References

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  1. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
  2. Ludena, Carlos & Hertel, Thomas & Preckel, Paul & Foster, Kenneth & Nin Pratt, Alejandro, 2006. "Productivity Growth and Convergence in Crop, Ruminant and Non-Ruminant Production: Measurement and Forecasts," GTAP Working Papers 2220, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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  11. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  12. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  13. Lionel Fontagné & Amélie Guillin & Cristina Mitaritonna, 2011. "Estimations of Tariff Equivalents for the Services Sectors," Working Papers 2011-24, CEPII research center.
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