Assessing Long Run Structural Change in Multi-Sector General Equilibrium Models

CGE models are often used to assess policies and environmental impacts occurring at some distant future. Whereas these models are characterized by a detailed account of the economic structure, which is often essential when dealing with impacts affecting specific sectors, they are also calibrated on the basis of some past input-output or SAM tables, meaning that they mirror an economic structure quite different from the one we could possibly observe in the future. Matsuyama (2016) points out that, as a matter of fact, the evolution over time of industrial shares, in terms of employment, value added or expenditure, can well be non monotonic, and calls this phenomenon "Generalized Engel's Law". For instance, the share of manufacturing is typically hump shaped, increasing at earlier stages of economic development, then decreasing. To replicate this characteristic into a model, a sufficiently sophisticated demand system must therefore be adopted. This paper is about the development of a a correct methodology to obtain long run estimates of structural change, considering both supply and demand drivers and delivering relevant results for applied economic models, not only CGEs. The different approaches found in the literature are critically evaluated first. Some preliminary results about structural change effects are subsequently presented and discussed. - estimation of a flexible demand system - estimation of industrial productivity growth - insertion into a CGE model - long run projections based on SSP2 - comparison of results between conventional CGE and a CGE structure designed to capture long run structural adjustment Estimates of AIDADS demand are available. Preliminary simulations are undergoing, whereas a paper draft, including rationale, state of the art, etc., is ready.