Exploring Long Run Structural Change with a Dynamic General Equilibrium Model

In this paper we present a computable general equilibrium model (G-RDEM), specifically designed for the generation of long run scenarios of economic development, featuring a non-homothetic demand system, endogenous saving rates, differentiated industrial productivity growth, interest payments on foreign debt and time-varying input-output coefficients. To the best of our knowledge, this is the first model of this kind. We illustrate how parameters of the five modules of structural change have been estimated, and we test the model by comparing its results with those obtained by a more conventional recursive dynamic CGE model. Both models are driven by the same GDP and population data, exogenously provided by the IPCC Shared Socio-economic Pathway 3. GDP levels determine the endogenous productivity parameters. Population affects the definition of per capita income, which in turn affects the household demand system and the variation of input-output coefficients. Information on the demographic structure is also employed to modify the aggregate saving rate parameters. It is found that the two models do produce different findings, both globally and at the regional and industrial level. Understanding the origins of such differences sheds some light on how mechanisms of structural change operate in the long run.