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

Economic projections for the world economy, in particular when building Computable General Equilibrium (CGE) baselines, are generally very conservative and hardly take into account the wide range of possible evolutions authorized by the underlying economic mechanisms considered. Against this background, we aim at projecting “open-minded” world trade trajectories. Considering the 2035 horizon, we examine how world trade patterns will be shaped by changing comparative advantages, demand and capabilities of the different regions. We combine a convergence model fitting three production factors (capital, labor and energy) and two factor-specific productivities with a dynamic CGE model of the world economy calibrated to reproduce observed elasticity of trade to income. We proceed for each scenario in three steps. We firstly project growth at country level based on factor accumulation, educational attainment and efficiency gains. This framework (demographics, Gross Domestic product, savings rates, factors and current account trajectories) is then imposed to the CGE as a baseline. We finally implement trade policy scenarios (tariffs as well as non-tariff measures in goods and services), such that the model provides factor allocation across sectors as well as demand and trade patterns. We end up with extremely differentiated trajectories for the world economy within only two decades. In turn, we obtain a wide range of foreseeable world trade patterns.