G-RDEM: A GTAP-Based Recursive Dynamic CGE Model for Long-Term Baseline Generation and Analysis

Abstract

We motivate and detail the newly developed G-RDEM recursive-dynamic Computable General Equilibrium model as a tool for long-term counterfactual analysis and baseline generation from given GDP and population projections. It encompasses an AIDADS demand system with non-linear Engel curves, debt accumulation from foreign saving and introduces sector specific productivity changes, endogenous aggregate saving rates, as well as time-varying input-output coefficients. Parameters for these relationships are econometrically estimated or taken from published work. The core of the model is derived from the GTAP standard model and seamlessly incorporated into the modular and flexible CGEBox modelling platform. Accordingly, it can be applied with various other extensions such as GTAP-AEZ, GTAP-Water or a regional breakdown for Europe to 280 NUTS2 regions. G-RDEM maintains the flexible aggregation from the GTAP data base. It is open source, encoded in GAMS and can be steered by a Graphical User Interface, which also encompasses a tool to analyse results with tables, graphs and maps. Existing GDP and population projections for the Socio-Economic Pathways 1-5 can be directly incorporated for baseline construction. A comparison of the generated long-term structural composition of the economy against a simple recursive-dynamic variant, using the basic CDE demand system of the standard GTAP model, uniform productivity growth, fixed saving rates and technology parameters, and no debt accumulation shows that G-RDEM brings about much more plausible results, as well as a more realistic, internally consistent representation of the economic structure in a hypothetical future.