Abstract
This chapter analyzes the variations in industrial structure induced by income-sensitive patterns of final consumption, and how these changes can be captured by a multi-sector numerical model with a flexible demand system. We focus, in particular, on the estimation of parameters for an AIDADS (An Implicitly, Directly Additive Demand System) specification. We then test the latter by inserting it in the ENVISAGE global general equilibrium dynamic model, which is run under the SSP2 scenario from 2011 to 2050. It is found that time-varying income elasticity can generate sizable variations in the industrial structure. This finding has important practical implications, particularly when structural models are applied at a medium and long term horizon.
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Notes
- 1.
Technical details about the specific algorithm and software are available on request.
- 2.
Labor productivity growth is assumed to be smaller for Services and greater for Manufacturing industries.
- 3.
Parameters of the AIDADS system were adjusted to fit the different industrial classification in ENVISAGE.
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Roson, R., van der Mensbrugghe, D. (2018). Demand-Driven Structural Change in Applied General Equilibrium Models. In: Perali, F., Scandizzo, P. (eds) The New Generation of Computable General Equilibrium Models. Springer, Cham. https://doi.org/10.1007/978-3-319-58533-8_2
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DOI: https://doi.org/10.1007/978-3-319-58533-8_2
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