wiod and worldscan

WIOD and WorldScan

Feedback, state of affairs and planned policy impact

analysis

Paul Veenendaal

CPB Netherlands Bureau for Economic Policy Analysis

Outline

• Feedback

• State of affairs

• Planned policy analysis

• Some alternatives

May 27 2011WIOT and WorldScan


Feedback

• What did we try to accomplish? calibrate a model version of WorldScan on the WIOT-table 2004 missing data could then by taken from GTAP-7 and our numerous

satellite accounts (same base year) we can compare simulation outcomes WIOT versus GTAP-based

• Did we succeed? No, not with the prelease of September 2010 (too many negative

entries everywhere) Yes, we are up and running with the release of February 2011



Our general findings• WIOT is a beauty!

inspired us to use the same lay-out for globally closed tables that we constructed from the GTAP-datasets for 2001 and 2004 (to build a database for the analysis of trade in value added indicators at the request of DG TRADE)

• WIOD sector classification is not/less suitable for climate change analyses

there is no explicit sector split for coal, electricity, gas and oil products (coal and oil products are together, electricity and gas too)

• Unavailability of most taxes and subsidiesthis is a serious drawback for CGE-exercises as welfare impacts of policy measures depend strongly on distortionscould compatible (with WIOT that is) national IOT’s help us here?



General findings• Supplies of international transport services are not available

transport services in WIOT are primary inputs in GTAP they are intermediates (for trade in goods only: transport via water, air and road/rail)

• WIOT is not globally closedyet, it is covers about 80% of global GDPthen, we cannot possibly make the small country assumption that world market prices are given

• There are still many negative entries for exports to RoWfor us they turned out to be manageable in the second release

• No distinction of exports from production and exports from imports and no correction for re-exports either what does the decision not to address re-exports mean?

› just ignoring them? treating imports for re-exports as ‘normal’ imports? Something else?



Specific comments• Incomplete national tables

no entries for China for trade rows c20 and c21• Incomplete WIOD country tables

no split of value added (8 countries)no skill split of labour (15 countries)no capital split (20 countries)

• No price/volume split for skill classeswe would need this to address human capital formation in China

• No capital stocks by type• No mapping from final consumption at the sectoral level to household

budget categories• No mapping from sectoral gross fixed capital formation to changes in

capital stocks by type



How did we get WorldScan afloat on WIOT?• First, we corrected negative export entries with RoW in WIOT by

adding a constant to both exports to and imports from RoWnote: this implies that RoW receives a larger input share than in WIOT

• Next, we aggregated WIOT 2004 and GTAP 2004 to a common sector and country classification: 26 sectors and 40 (WIOT)/ 41(GTAP) countries

thus obtaining RoW from GTAP• Finally, we forced RoW to accept WIOT bilateral trade with RoW by

adjusting final demands in RoW• Thus, obtaining a merged, closed, global IO data set • We calibrated WorldScan on this dataset and prepared a baseline on

it as well• .. and WorldScan is up and running on WIOT 1994



Our planned impact analysis• Impacts on EU (policies) of rising human capital formation in China

what would be the implication of larger inflows into higher education for China in the medium term?what would be the impact of more R&D in China (made possible by a larger stock of high-skilled R&D workers) on Europe?

• To analyse this we need in WorldScan to modelR&D investment Human capital formation



R&D modelling in WorldScan• R&D expenditures accumulate in R&D stocks

• Firms decide on optimal R&D stock

• R&D stock accumulations are produced in a separate R&D sector

• R&D spills over to total factor productivity inown sectorother sectors foreign sectors



R&D in CES production nest



R&D modelling equations



R&D spillover estimatesCoefficient Parameter estimate Average elasticityOwn sector R&D spillover

0.049(0.022)

0.049

Other sectoral R&D spillover

0.325 (0.107)

0.074

Foreign R&D spillover 0.868 (0.233)

0.056

Total 0.180


N=2250; R2 = 0.183; Lejour, A.J. and R. Nahuis (2005), R&D spillovers and growth: specialisation matters, Review of International Economics, 2005


Implications and modifications• The parameter estimates imply a social rate of return of 90%

Visser, S., R&D in WorldScan, CPB Memorandum 189, 2007• Thus, stimulating R&D was one of the most promising policy

instruments for meeting the overall goal of the Lisbon agendajust second to increasing labour participation

• Later on we improved WorldScan in three respects high-skilled labour became a complement to capital in the

production nest four (education-based) skill classes were introduced: low skilled,

medium skilled, high skilled and the top of the high skilled: the R&D workers

R&D workers are scarce and heavy subsidization of R&D will partly evaporate into higher wages of R&D workers



Modification of production nest for value added (1)



Modification of production nest for value added (2)



.. and introduction of wage differential between high-skilled and R&D workers

• Hence, heavy subsidies on R&D will partly evaporate into wage increases for R&D workers

Rojas-Romagosa, H., Modelling Human Capital formation in WorldScan, CPB Memorandum 244, 2010



Human capital satellite of WorldScan• Keeps track of skill cohorts

• Has many policy parameters that may modifythe size of a skill classthe average efficiency of a skill classthe share of the high-skilled that is capable of doing R&D work

• These modifications are sent each simulation year to WorldScan



Impacts of human capital formation• The human capital plus R&D components of WorldScan will generally

indicate:an increase of educational enrollment will reduce growth in the short term (less workers)higher enrollment in the topclass of the high-skilled will be needed to boost R&Dif there is enough enrollment R&D-growth will become feasible growing R&D stocks will foster growth at home growing R&D stock will also foster growth abroad, especially if trade relations are intensive

• Hence, it seems that – from the modelling point of view – we are well-prepared to analyse the impacts of human capital formation in China



… but what about the data?• WIOD labour split for China is not yet in sight

• No price/volume split for skill classes available

• OECD ANBERD is not abundant in supplying sectoral R&D expenditure in China (2000 is there, and to a lesser extent 2008 and 2009 as well, but only national totals for the years 2001-2007)

• We have just 10 months left to do the work

• Hence, we should perhaps conclude that addressing human capital formation in China within the WIOD-project has become infeasible



Some alternatives?• Exploit time-series character of WIOTs

re-estimate substitution elasticities of › production nests› Armington nests

• Exploit wealth of trade information of WIOD disaggregate Armingtons (and estimate elasticities) construct plausible globalisation scenario’s

› try to capture globalisation trends from WIOTs over the years 1995-2006

› extend these in a baseline up to 2025› analyse

◦changes of trade structure with value added indicators◦changes of position of skill classes on the labour market


wiod and worldscan

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