Modelling the world economy at the 2050 horizon

Authors


  • We are grateful to Benjamin Carton, Gilbert Cette, Yvan Decreux and Valérie Mignon for helpful advice, to the participants in the joint Bank de France-CEPII-INSEE-French Treasury seminar, held on the 19th May 2010, and to those of the joint Bruegel-OECD workshop, held on the 12th February 2013, for their remarks on an early draft. All errors remain ours.

Abstract

Economic analysis is increasingly addressing long-term issues (such as global warming) that require a dynamic baseline for the world economy. In this article, we develop a three-factor (capital, energy, labour) macroeconometric (MaGE – Macroeconometrics of the Global Economy) model, and project growth for 147 countries to 2050. We improve on the literature by the following: (i) accounting for the energy constraint through dynamic modelling of energy productivity, (ii) modelling female participation rates consistent with education catch-up, (iii) departing from the assumptions of either a closed economy or full capital mobility (by applying a Feldstein–Horioka type relationship between saving and investment rates), and (iv) offering a fully consistent treatment of the Balassa–Samuelson effect. These innovative features have a sizeable impact on projected GDP.

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