A Baseline Scenario for the Dynamic GTAP Model

Abstract

The increasing interest in dynamic models and in particular the development of the Dynamic GTAP model at the Center for Global Trade Analysis has highlighted the need for the development of a baseline scenario depicting how the world economy might be expected the change over the next 20 years. The purpose of this paper is to describe in detail the baseline scenario developed for the Dynamic GTAP model (Ianchovichina and McDougall, 2000) and the GTAP data base (Dimaranan and McDougall, 2005).In the dynamic GTAP model the policy experiment of interest is compared against a counterfactual baseline scenario. The baseline scenario should reflect as closely as possible the changes expected to occur in the world economy, excluding the particular policy of interest. In this baseline we examine the expected changes in macro economic variables such as the growth of real GDP, capital, skilled and unskilled labour etc.While there is a tendency in this paper to speak of the Dynamic GTAP baseline scenario, it should be understood that in practice each baseline is likely to be unique, incorporating those elements of a baseline which are most relevant to the actual policy question being examined.There are, however, certain key variables which form the basis of most baseline scenarios, it is with these variables that the focus of this paper lies. Despite the fact that baseline scenario's will differ, there are significant benefits to be gained, in terms of time-saved and comparability of results, from sharing a common set of forecasts for these variables.The paper may also refer to the baseline program. This is the program developed to calculate the growth rates of the macro variables and then aggregates these shocks for use with a GTAP data aggregation.

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