The supply side (Outdated) #

All sectors are represented through a generic production functional form which is then calibrated in the reference year to take into account sectors and regions specificities.

Production factors #

Production makes use of five factors: capital, skilled labour, unskilled labour, land and natural resources. Factor endowments are assumed to be fully employed.

Factor supply #

Growth rates of factors are:

exogenous for natural resources (Outdated)(set to zero by default) and labour (Outdated) (based on demographic forecast provided by ILO).
endogenous for land (Outdated) and capital (Outdated).

Even though saving rates are exogenous, total incomes vary and the regional and sectoral allocation of savings depends on capital returns.

The possibility of extending arable land is considered, by means of a global supply function for land (Outdated), characterised by a constant elasticity to land return.

Factor mobility #

Capital, natural resources #

Installed capital and natural resources are sector-specific, so that their rates of return may vary across sectors and regions.

Labour #

Labour is region specific. Skilled labour is considered perfectly mobile across sectors. Unskilled labour is perfectly mobile within two sets of sectors in each country, corresponding to agricultural production on the one hand and non agricultural production on the other hand. It is imperfectly mobile between these two sets of sectors and is immobile across countries. In the standard version of the model, labour mobility across the two sets of sectors is represented through the assumption that total labour is a CET bundle of two labour types.

See Labour market section for details (Outdated)

Land #

This global factor is distributed across productions based on the assumption that it is a Constant Elasticity of Transformation (CET) function of land demands; this assumption introduces an imperfect mobility of land across uses.

See land section for details (Outdated)

Substitution in the production chain #

Structure of sector’s i production function

Intermediary consumptions #

In a standard fashion, perfect complementarity is assumed between value added and overall intermediate consumption (Leontieff function). The sectoral composition of the intermediate consumption aggregate stems from a CES function, with the same elasticity as in the corresponding CES-LES for final consumption. Then, for each product, the geographical origin of the product is based on the same nesting as for final consumption, meaning that the sector bundles for final and intermediate consumptions share a same structure by origin.

Substitution between factors #

Value added is a Cobb-Douglas function of land, natural resources, unskilled labour and a CES bundle of capital and skilled labour. This structure is intended to take into account the well-documented skill-capital relative complementarity. The elasticity of substitution within the capital and skilled labour bundle is assumed to be lower (0.6) than the elasticity between this bundle and other factors (1). The Cobb-Douglas function can be switched in the model to a CES specification for sensitivity analysis purpose.