1. This project is co-funded by the European Union
I3U “Investigating the Impact of the Innovation Union“ Kick off meeting - 10 March SEURECO WP 10 Boris Le Hir, Pierre Le Mouël, Paul Zagamé
Venue: ISIS – Institute of Studies for the Integration of Systems
Largo dei Lombardi, 4
00186 Rome, Italy
This project is co-funded by the European Union

2. Workpackage 10: Macro-Sectoral Economic Modelling
WP objectives:
General objective: Assessing the impact of the 34 commitments in the whole economic system, taking into account the economic feedbacks
Implementation in the macro-sectoral model NEMESIS of the results of the WP1 to 8 and in interaction with WP9
Impact assessment of commitments individually or by small groups
Impact assessment of the 34 commitments as a whole

3. Content Presentation of NEMESIS General presentation
Innovation and economic feedbacks
Policy assessments with NEMESIS
Work and Relations with other Workpackages
Sensitive parameters
Relations with other WP
Impact assessment of the 34 IU commitments
Implementation
Resources
List of tasks and deliverables
Immediate action

4. I. Presentation of NEMESIS

5. I.1) General Presentation of NEMESIS
Macro Sectoral Econometric model
27 European Countries, 30 Sectors, 28 Consumption categories
Endogenous growth model
Optional modules:
Land use
Energy
Environment

6. I.1) General Presentation of NEMESIS
List of sectors:
1 Agriculture
2 Coal and Coke
3 Oil & Gas Extraction
4 Gas Distribution
5 Refined Oil
6 Electricity
7 Water Supply
8 Ferr & non Ferrous Metals
9 Non Metallic Min Products
10 Chemicals
11 Metal Products
12 Agr & Indus Machines
13 Office machines
14 Electrical Goods
15 transport Equipment
16 Food, Drink & Tobacco
17 Tex., Cloth & Footw.
18 Paper & Printing Products
19 Rubber & Plastic
20 Other Manufactures
21 Construction
22 Distribution
23 Lodging & Catering
24 Inland Transports
25 Sea & Air Transport
26 Other Transports
27 Communication
28 Bank, Finance & Insurance
29 Other Market Services
30 Non Market Services

7. I.1) General Presentation of NEMESIS
Main inputs (exogenous variables)
International environment
Oil Price
Demography
Interest rates
Taxation
Taxes
Subsidies

8. I.1) General Presentation of NEMESIS
Main ouputs (endogenous variables)
Factors demands (made by Sectors)
Activity
Labour
Production
Energy
Value Added (Market Prices)
Intermediate Cons. (Excl. Energy)
Value Added (Factor Costs)
Investment
Exports
Innovation assets
Product Demand (addressed to sectors)
Prices
Final Consumption
Production Prices
Import Prices
final use
Export Prices
Intermediate use
Consumption Prices
Production Factors Prices
Value Added Prices
Imports

9. I.1) General Presentation of NEMESIS
Main ouputs (endogenous variables)
GDP and its allocation
Labour and employment
Private Final Cons.
Labour force
Public Final Cons.
Employment
Investments
Unemployment rate
External Trade (Intra-EU and extra-EU)
Unemployment
Real Disposable Income
GDP deflator and its allocation
GDP price
Private cons. price
Public cons. price
Investment price
Exports price
Imports price

10. I.1) General Presentation of NEMESIS
The production functions: a nested CES structure Y A X M
KLE
LLs
KLHSE
LHS KE K E

11. I.2) Innovation and economic feedbacks in NEMESIS
Fully Endogenous growth model:
The long term rate of growth of productivity depends on the research intensity R/Y. Several econometric works confirm this specification: Zachariodis (2003); Laincz and Peretto (2004), Ha & Howitt (2005). Since other works are more ambigous: Madsen (2008).
Three innovation assets:
R&D
ICT (hardware)
Other Intangibles (software and training)

12. I.2) Innovation and economic feedbacks in NEMESIS
Production function:
𝑌 𝑐𝑖𝑡 =𝑆 𝐶 𝑌𝑐𝑖 × 𝛿 𝐴 𝑐𝑖 1+ 𝜌 𝑌𝑐𝑖 ∙ 𝐴 𝑐𝑖𝑡−1 − 𝜌 𝑌𝑐𝑖 + 𝛿 𝑋 𝑐𝑖 1+ 𝜌 𝑌𝑐𝑖 ∙ 𝑋 𝑐𝑖𝑡 − 𝜌 𝑌𝑐𝑖 − 1 𝜌 𝑌𝑐𝑖
Innovation function:
𝐴 𝑐𝑖𝑡 = 𝑆𝐶 𝐴𝑐𝑖 × 𝛿 𝐴𝑅 𝑐𝑖 1+ 𝜌 𝐴𝑐𝑖 ∙ 𝐴 𝑅𝐷 𝑐𝑖𝑡 − 𝜌 𝐴𝑐𝑖 + 𝛿 𝐴𝑇 𝑐𝑖 1+ 𝜌 𝐴𝑐𝑖 ∙ 𝐴 𝐼𝐶𝑇 𝑐𝑖𝑡 − 𝜌 𝐴𝑐𝑖 + 𝛿 𝐴𝐼 𝑐𝑖 1+ 𝜌 𝐴𝑐𝑖 ∙ 𝐴 𝑂𝐼 𝑐𝑖𝑡 − 𝜌 𝐴𝑐𝑖 − 1 𝜌 𝐴𝑐𝑖
Innovation components:
𝐴𝑗 𝑐𝑖𝑡 = 𝑆𝐶 𝐴𝑗𝑐𝑖 ∙ 𝐾𝑁𝑂𝑊𝑗 𝑐𝑖𝑡 𝜆 𝑗𝑐𝑖 ∙ 𝑗 𝑐𝑖𝑡 𝑉 𝐴 𝑐𝑖𝑡
𝐾𝑁𝑂𝑊𝑗 is the knowledge stock related to the asset j
𝑗 𝑐𝑖𝑡 𝑉 𝐴 𝑐𝑖𝑡 is the investment intensity in asset j

13. I.2) Innovation and economic feedbacks in NEMESIS
The knowledge stocks: own knowledge + external knowledge
𝐾𝑁𝑂 𝑊 𝑅 𝐷 𝑐𝑖𝑡 = 𝑝=1 𝑃 𝑠=1 𝑆 Ψ 𝑝,𝑠→𝑐,𝑖 ×𝑆𝑅 𝐷 𝑝,𝑠,𝑡−Δ
𝐾𝑁𝑂 𝑊 𝐼𝐶𝑇 𝑐𝑖𝑡 = 𝑝=1 𝑃 𝑠=1 𝑆 Φ 𝑝,𝑠→𝑐,𝑖 ×𝑆 𝐼𝐶𝑇 𝑝,𝑠,𝑡−Δ
𝐾𝑁𝑂 𝑊 𝑂𝐼 𝑐𝑖𝑡 = 𝑝=1 𝑃 𝑠=1 𝑆 Φ 𝑝,𝑠→𝑐,𝑖 ×𝑆 𝑂𝐼 𝑝,𝑠,𝑡−Δ
Knowledge flows coefficients based on patent data
(Meijers and Verspagen, 2010 and Belderbos and Mohnen, 2013)

14. I.2) Innovation and economic feedbacks in NEMESIS

15. I.2) Policy assessments with NEMESIS
Method:
Defining a baseline scenario (Business As Usual without the implementation of the policy)
Computing variant scenario representing the implementation of the policy
Policy analysis as the difference between the variant scenario and the baseline

16. I.2) Policy assessments with NEMESIS
As an example: implementation of the National Action Plan for R&D (2014)
Hypothesis for the baseline scenario: R&D intensities maintained constant in each country/sector
Hypothesis for the variant scenario: progressive achievement of the NAP for R&D in each country

17. I.2) Policy assessments with NEMESIS
As an example: implementation of the National Action Plan for R&D (2014)

18. II. Work and Relations with other Workpackages

19. II.1) Sensitive parameters

20. II.1) Sensitive parameters
1: Innovation decision:
Endogeneous through maximisation of the value of the firms
But too simple mechanisms: Role of risk? Of institution? The econometric works show that the source and the way of financing matters a lot on the decision of investing for innovation.
The role of policies/commitments on the parameters linked to this decision

21. II.1) Sensitive parameters
1: Innovation decision:
Price elasticities of investments
Elasticities of substitution between innovation inputs: R&D, OI and ICT
One level CES → symetric elasticities of substitution between AR&D; AOI; AICT
First estimations at macro-sectoral level: Corrado, C. A.; Haskel, J. & Jona Lasinio, C. , 2014

22. II.1) Sensitive parameters
2: Knowledge spillovers
Intersectoral and international spillovers
Based on patent citations (DEMETER project - Meijers and Verspagen 2010) and SIMPATIC project - Mohnen and Belderbos, 2013)
The relative importance of spillovers associated to R&D, ICT and OI (Corrado, C. A.; Haskel, J. & Jona Lasinio, C. , 2014)

23. II.1) Sensitive parameters
3: Performance of innovation
Lags between
Investment to knowledge
Knowledge to innovation
Innovation to economic performance
Type of Innovation:
Process innovation: ΔProductivity → ΔPrices
Product innovation: ΔQuality → ΔDemand

24. II.1) Sensitive parameters
4: Impact on Goods & Services market
ΔPrices + ΔQuality → ΔDemand
5: Impact on Labour market
ΔLabour Productivity → ΔLabour demand → Δwages
ΔEducation → Δhigh skilled supply
6-7: ΔWages and ΔPrices on G&S market → Cost of innovation factors
→ Decision on innovative investments

25. II.2) Relations with other workpackages
Inputs / assistance provided to other workpackages:
Help in the identification of the mechanisms to assess at macro-sectoral level in order to make output of WP1-8 “implementable” in NEMESIS
Help in data collection

26. II.2) Relations with other workpackages
Inputs / assistance needed from other workpackages:
How each commitment modify the sensitive features of the model?
Access to finance → Decision in innovative investments
Knowledge Alliances and Skills for Innovation → Spillovers & Labour market
Differences between sectors?
Quantitative inputs as much as possible
Composite indicators? (Cincera, Daraio, Tarantola, 2014 Expert Group to build composite indicator(s) on ERA implementation)
Indicators’ variability for sensitivity analysis (Saltelli et al. 2014)
Which dynamic? (progressive implementation of the commitments)

27. II.2) Relations with other workpackages
1 Decision on Innovation Inputs
2 Spillovers
1+2 Production of Innovation
3 Economic performances
of innovation
4 G&S market
5 Labour market
Needs for Modification of NEMESIS
Exogeneous variables
Parameters
Behavioural equations
Com. 1
Increase the supply of High skill of X%
Yes No ⁞
Com. z
Decrease the cost of R&D of R%
Increase R&D investment of Z%
Com. n
Increase spillovers in Europe of N%

28. II.2) Relations with other workpackages
All the commitments are not orthogonal
Strong interactions also with MERIT and the Conceptual Innovation System Model (WP9)
To make all commitments analyses coherent
To identify the orthogonalities and to filter the overlapping and between commitments
Bilateral interactions will be crucial

29. II.2) Relations with other workpackages

30. II.3) Impact assessment of the 34 IU commitments
Definition of the Baseline scenario: Business As Usual
Definition of variant scenarios matching with the implementation of each commitment or group of commitments
Difficulty:
Several commitments has been totally or partially implemented already. Depending on whether they have already generated impact or not, they will be integrated in the BAU or not.

31. II.3) Impact assessment of the 34 IU commitments
Two ways to compute the variant scenarios:
The positive form (ex-ante evaluation)
The commitment is not implemented in the BAU
The variant scenario represents the implementation of the commitment
What will be the situation if the objective of the commitment is achieved?
The negative form (partly ex-post evaluation)
The commitment is already implemented in the BAU
The variant scenario represents the situation without the commitment
What would have been the situation if the commitment had not been made?

32. II.3) Impact assessment of the 34 IU commitments
The assessment of the 34 commitments as a whole
As a combined approach is not possible, the positive form of evaluation is necessary
The BAU must integrate no commitment

33. III. Implementation

34. III.1) Resources
The most important part of the resources comes from SEURECO
But all partners are participating to this WP in order to make the link with the other WPs. For the same reason, SEURECO is participating to all WP dealing with the assessments of the commitments individually.
Making coherent all the direct commitment assessments (atomistic approach) by putting the analysis in the whole economic system (holistic approach) is one of the most important aspect of the project

35. III.2) List of Tasks and Deliverables
Task 10.1: To summarize and to quantify
Task 10.2: Modification of innovation mechanisms
Task 10.3: Modifying behavioural equations
Task 10.4: Baseline scenario
Task 10.5: Impact assessment of commitments
Task 10.6: Sensitivity analysis

36. III.2) List of Tasks and Deliverables
List of deliverables:
D10.1: Sum up the effects to take into account (M12)
D10.2: Implementation in the macro-sectoral model NEMESIS (M22)
D10.3: Definition of a reference scenario (M24)
D10.4: Impact assessment of commitments individually and/or by group (M30)
D10.5: Impact assessment of commitments as a whole (M36)
D10.6: Sensitivity analysis (M36)

37. III.3) Immediate actions
Defining the field of action of each policy/commitment (which part of the innovation system each commitment impacts)
Precising the nature of the impact of each commitment on sensitive parameters of NEMESIS:
Does the commitment impact only an exogenous variable?
Does the commitment need modification of NEMESIS?
Modification of parameters?
Modification of behavioural equations?
Defining the data to collect and the indicators to built.

38. Thank you... And let’s get to work!
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