World economic dynamics and technological change: projectinginteractions between economic output and CO
Director and Senior Research Associate, Cambridge Centre for Climate Change Mitigation Research(4CMR), Department of Land Economy, University of Cambridge (UK); Email:email@example.com
Research Associate, Cambridge Centre for Climate Change Mitigation Research (4CMR), Departmentof Land Economy, University of Cambridge (UK); Email:firstname.lastname@example.org
L. Vanessa Smith
Research Fellow, Centre for Financial Analysis and Policy, Judge Business School, University of Cambridge (UK); Email:email@example.com
With the emergence of accelerated technological change and progress, economic growth has beenexhibiting increasingly complex features. Trade within and across industries, countries and regions,has risen sharply, and the globalisation effects of economies of specialisation, low-cost informationtechnologies and networks have taken a stronger grip on economies. Furthermore, long-runeconomic growth backed by conventional fossil-based technologies (within the context of anincreasing population and escalating demands for goods and services) are exerting anunprecedented pressure on the environment, particularly in terms of greenhouse gas emissions andclimate change. We investigate not only the historical dynamics of the world economic system, butalso project likely long-term changes in the structure of economic output across economies, andassess co-movements between economic activities and greenhouse gas emissions, with anemphasis on the role of endogenous technological change. This is mostly a methodological paperwith innovative large-scale econometric modelling techniques with dynamic structures beingbrought to the fore. We find that century-long projections of economic systems are seldomaddressed in the literature, not least because of the inability of models to predict structural changesand the penetration of new technologies. We argue that four key features need to be adequatelyaddressed when modelling long-run economic changes at the macro-level, with particular relevancefor climate change analysis. First, in projecting economic systems one needs to first consider theirbehaviour in the past. Second, the channels of international transmission and the increasingeconomic interdependence across markets and countries have to be incorporated. Third, there is aneed for explicitly modelling the effects of endogenous technological change on economic systems.And fourth, which is the focus of our future research, our understanding of the uncertaintiesunderlying the projections should be explored to avoid misleading deterministic solutions based onthe assumed properties of the systems.
Paper presented at the International Conference on “The Institutional and Social Dynamics of Growthand Distribution”, Pisa (Italy), 10-12 December 2007.
The research reported in this paper was conducted as a contribution to Work Programmes M2 and S(scenarios) of the ADAM FP6 project (no. 018476-GOCE): Adaptation and Mitigation Strategies:Supporting European Climate Policy (www.adamproject.eu).