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1 R&D efforts during crisis and beyond: Some lessons from NEMESIS simulations Arnaud Fougeyrollas, Pierre Haddad, Boris le Hir, Pierre le Mouël et Paul.

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Presentation on theme: "1 R&D efforts during crisis and beyond: Some lessons from NEMESIS simulations Arnaud Fougeyrollas, Pierre Haddad, Boris le Hir, Pierre le Mouël et Paul."— Presentation transcript:

1 1 R&D efforts during crisis and beyond: Some lessons from NEMESIS simulations Arnaud Fougeyrollas, Pierre Haddad, Boris le Hir, Pierre le Mouël et Paul Zagamé WIOD CONFERENCE VIENNA- May 26-28, 2010

2 2 Outline 1.The NEMESIS model 2-R&D policies are useful during crisis 3- A new scenario for 3% Barcelona objective 4- Increasing R&D effort: doubling FP8 5- Redeployment of European budget towards R&D 6- Conclusions

3 3 1-The NEMESIS Model: 1.1-General dynamic Physico Economic interdependancies NEMESIS Core economic model Energy/Environment Module Regional Module (Gives results for NUTS 2 regions) Agriculture module (Detailed agriculture production function) Land-Use module -Transport - Urban - Agriculture

4 4 1- The NEMESIS Model 1.1-General dynamic Intersectoral Economic Interdependancies: up to Knowledge (30 sectors) Price and substitution effects on final demand Exchange of goods and services for production (input-output) Intermediary Capital Knowledge spillovers Strong heterogeneity of sectors from a dynamic point of view (employment, knowledge, Environment, Energy…) Economic track: the result of strong interdependancies of most progressive sectors (I.C.I, biotechnologies, and less ones (some services, agriculture)

5 5 1-The NEMESIS Model 1.1-General dynamic Macro-sectoral (hybrid) Bottom-up sector approach: GDP, revenues are the sum of sectors Top down: macro Economic Saving Consumption arbitrage Hybrid result: dynamic loop is generally sectoral: productions, prices, investment, employment, revenues but with a macroeconomic feedback by consumption Complex result for the dynamic

6 6 1- The NEMESIS Model 1.1-General Dynamic International interdependancies 27 distinct models for Europe Simplified models for Areas of rest of the World International exchanges of goods and services International knowledge spillovers

7 7 1- The NEMESIS Model 1.2- Econometric based mechanisms Econometrics Mainly on chronological data or panel data (sectors, countries) Based on implicit maximisation behaviour, (utility profit) but not on explicit maximization conditions and with a choice of relationship based on econometric criteria Then different from applied general equilibrium approach that is based on: Maximization Calibration Eqilibrium on every market

8 8 1- The NEMESIS Model 1.2-Econometric based mechanisms A compromise theory /data Applied modelling is always a « compromise » between : Theory Data and facts The compromise for econometric modelling is nearer data and facts than general equilibrium one

9 9 1- The NEMESIS Model 1.2- Econometric based mechanisms Inconvenients Can be rejected by strict orthodoxy No explicit utility functions and then impossibility to calculate surplisses variations associated to policies Dependant on statistics availability that is not case for G.E.M. aprroach that is calibrated

10 10 1- The NEMESIS Model 1.2-Econometric based mechanisms Advantages Modelling is more based on data recent tendencies and in this sense « more realistic » Allow forecasts and easier link with the present conjoncture conditions for the start of Baseline Allow easier adaptation to specific mechanisms (pricing for zero marginal cost activities)

11 11 1- The NEMESIS Model 1.2-Econometric based mechanisms Advantages (following) Structure more « flexible » allowing easy removal of mechanisms More adaptable to heterodox theories Suited for prospective of « break through scenario ».

12 12 1- The NEMESIS Model 1.3-The central rôle of « knowledge economics » Three main variables R&D expenditures and R&D stocks Spillovers and technical Knowledge (T.K.) Human capital

13 13 1- The NEMESIS Model 1.4. Externalities and knowledge spillovers 13

14 14 1- The NEMESIS Model = elasticity for KNOW performance –increasing with R&D intensity in the sector i and the country j with 14 1.5-Sectoral and national results for knowledge performance

15 15 1- The NEMESIS Model 1.5-Sectoral and national results for R&D performance But sectoral knowledge spillovers very heterogeneous - Emitting sources - Reception Then for sectors and countries –Identity for private rate of return –Heterogeneity of social rate of return 15

16 16 1- The NEMESIS Model 1.6-The use of NEMESIS Energy Environment, GHG, other pollutions Agriculture and land use R&D and knowledge Economics: 3% barcelona FP (7-8) New National Action Plan for R&D

17 17 2- R&D policies are useful during crisis 2.1- R&D effort is lowering during crisis (procyclical): Countercyclical view: Need for efficiency Opportunity cost Bental and Piled (1960) François Lloyd Ellis (2003) But majority for pro-cyclical view: Financial contraints Demand driven François Lloyd Ellis (2009)

18 18 2- R&D policies are useful during crisis 2.2- The durability of crisis Short term effects of crisis: DG ECFIN (Fall prospect )

19 19 2- R&D policies are useful during crisis 2.2- The durability of crisis Evolution of GDP in pre- and post-crisis forecast scenarios

20 20 2- R&D policies are useful during crisis In the new forecast, NEMESIS is constrained in 2008, 2009 and 2010 to reproduce DG ECFIN GDP prospects. After 2010, NEMESIS shows that the effects of crisis are durable: The GDP gap increases up to 2025 and after

21 21 2- R&D policies are useful during crisis 2.2- The durability of crisis Average growth rates of production in pre- and post-crisis forecast scenarios

22 22 2- R&D policies are useful during crisis 2.2- The durability of crisis Evolution of employment in pre- and post- crisis forecast scenarios

23 23 2- R&D policies are useful during crisis 2.2- The durability of crisis Evolution of Employment is different than for GDP: The employment gap of 2010 is half filled in 2015 The lowering of wages during crisis allows a growth richer in employment during the economic recovery

24 24 2- R&D policies are useful during crisis 2.3- The research for economic recovery Post-Crisis scenario with countercyclical R&D (3): Increase of R&D effort up to 3% GDP in 2020 Additional R&D financed mainly by private sector such as to reach 2% private financing in 2020

25 25 2- R&D policies are useful during crisis 2.3- The research for economic recovery

26 26 2- R&D policies are useful during crisis 2.3- The research for economic recovery 43% of GDP gap is filled in 2025 but GDP growth is faster and GDP gap reduced compared to the post-crisis scenario without counter-cyclical R&D

27 27 2- R&D policies are useful during crisis 2.3- The research for economic recovery

28 28 2- R&D policies are useful during crisis 2.3- The research for economic recovery The employment Gap is almost filled in 2015. The reduction of wages during crising stimulates employment, the increase in R&D effort boosts growth: Economic recovery is rich in jobs creation

29 29 3- A new scenario for Barcelona 3% objective Former assessment in 2002 for EU15 Extension to new member States New agenda Crisis

30 30 3- A new scenario for Barcelona 3% objective

31 31 3- A new scenario for Barcelona 3% objective GDP and its counterparts in the 2002 assessment for EU15

32 32 3- A new scenario for Barcelona 3% objective GDP and its counterparts in the new Barcelona scenario for EU27

33 33 3- A new scenario for Barcelona 3% objective Crisis reduces R&D efforts in the model in 2009 The new assessment shows less deficits in the first phase due to low inflationary pressure in reason of: High unemployment rate Low production capacity utilisation rate In the long term the major driver for GDP growth are first exportations and second final consumption It was the reverse in the former assessment The lowering of wages during crisis stimulates external competitiveness but hampers final consumption

34 34 4- Increasing R&D effort : doubling the FP8 (1/4) 4.1- Characteristics of the FP : Small share of R&D effort of the European countries: 0.054% of EU GDP in 2009 Up to potentially 0.076% in 2013 (according to the F.P. 7 financial scheme) 1.9% for total R&D effort

35 35 4- Increasing R&D effort : doubling the FP8 (2/4) 4.1- Characteristics of the FP But generates strong incentives (crowding-in effects): Networks effects Best practices transfer High productivity Then doubling FP in 2020 FP will be 0,15% of EU G.D.P. The total R&D effort raises by 0,18% of G.D.P. (1/6 of Barcelona effort)

36 36 4- Increasing R&D effort : doubling the FP8 (3/4) 4.2-Economic consequences

37 37 5- Redeployment of European budget towards R&D 5.1- Redeploying part of CAP direct supports ( 16%) towards the FP in order to double it leads to an increase of G.D.P and employment: 1.2% additional GDP in 2025 1 million (0.48%) more jobs in 2025 37

38 38 5- Redeployment of European budget towards R&D 5.2-But with important adjustment costs for agriculture: Production -0,14 Arable land -0,46 Employment -2,3 Revenu -2,45

39 39 GDP

40 40 6- Conclusion R&D policies seem to be more adapted to today economic situation deeply impacted by the crisis: Pulling up the European economy while inducing only limited deficits and inflationary pressures A better way out of the crisis with a fast catching up of employment and a lower one of G.D.P., compared to their potential level before crisis

41 41 6- Conclusion The implementation of other structural policies like GHG reduction could also give more breathing space for increasing the R&D effort incentive policies: ex. recycling of the auctionning revenus of the EUTS permits

42 42 6- Conclusion The results presented here are macro economic at EU level The different results at a detailed level or countries and sectors highly differenciated regarding the R&D efforts and knowledge spillovers are interesting

43 43 6- Conclusion The future developments of modelling are on : The use of new databases (EU-KLEMS and WIOD for productivities, input output tables in order to make new estimations Deepening of externalities and Knowledge spillovers General purpose technologies (ICT,…) International spillovers New simulations on R&D policies

44 44 6- Conclusion The main message for WIOD is : –The feasibility of simulations of a detailed interdependent econometric system –The need for new databases and the first results of WIOD will be welcome

45 45 6- Conclusion Thank you for your attention! afougey@ecp.fr lemouelp@ecp.fr Paul.zagame@ecp.fr


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