Value Added in Motion: Modelling World Trade Patterns at the 2035 Horizon

Abstract

We address in this paper the future geography of production, migration and energy at the world level, and the consequences for the largest European countries. We take scant account of the wide range of possible evolutions of the world economy in terms of technological progress and diffusion, education, demography including migrations and finally energy price and efficiency. Taking a 2035 horizon, we examine how world trade patterns will be shaped by the changing comparative advantages, demand, and capabilities of different regions, and what will be the implications in terms of location of value added at the sector and country level. 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, demography and migration, educational attainment and efficiency gains, and discuss uncertainties related to our main drivers. Second, we impose this framework 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.

Value Added in Motion: Macroeconomic Implications of Energy Price Trajectories

“…This paper adopts the GDP-driven CGE approach described in detail in Fontagné & Fouré (2015) 7 . In what follows we briefly summarize the building blocks of the simulation procedure.…”

“…Finally, the commitments of the Copenhagen agreement encompassed all GHG emissions, whereas we only consider CO 2 emissions. We make the assumption that all the effort in reducing GHG emissions will 7 Fontagné and Fouré (2015), Value Added in Motion: Modelling world trade patterns at the 2035 Horizon. 8 Price trajectories are reported and discussed in Section 2, Figure 1.…”

“…A sounding representation of the future production and consumption patterns is critical to design effective policies and the key is being able to anticipate medium or long run growth scenarios. The main trajectories of world economy, factor allocation and trade in the 2035 horizon considered here are presented in Fouré and Fontagné (2015). These alternative scenarios are derived from the combination of a Growth Model, to derive macroeconomic trends, with a Computable General Equilibrium model (MIRAGE-e) to further decompose sector growth, factor allocation and world trade patterns.…”