The core of the APPS’ methodology for assessing future sustainability is a macro-economic model extended with social and environmental indicators.
Traditional use: climate change impacts and policies assessment
Macro-economic model: all markets are interconnected within each country by input-output relationships (all markets can use inputs bought from other sectors and all markets can sell their output to other sectors) and across countries by international trade (all markets can buy/sell outputs/inputs from/to other countries)
Micro-economic foundation: stylized behaviour of economic agents that aims at maximizing their own profits (firms) and consumption (households) in each period/year
Computable or Applied General Equilibrium: the multi-market model is connected to worldwide real-life data observed in the benchmark year, based upon the merging of national social accounting matrices (sophisticated input-output tables) into a global economic database (GTAP8).
General Mechanism: Starting from the initial situation (benchmark equilibrium), following socio-economic (e.g. population, primary factors stocks and productivity) as well as (economic, social and environmental) policy-driven changes occurring in the economic system, agents are allowed to modify their decisions in terms of input mix (firms) and consumption basket (households). Decisions depend upon changes in relative prices in all (national and international) markets according to pre-determined behavioural and physical constraints (elasticities of substitution/transformation).
Recursive-dynamic engine: the model finds a new general (worldwide and economy-wide) equilibrium in each period by solving at yearly steps. All subsequent periods/years are interconnected through the process of accumulating physical capital stock in each country, net of its deterioration. The matching between savings and investments only holds at world level, while the allocation process of worldwide savings across countries in each year follows a rule of “countries with higher return of capital take more”.
APPS’ customization: the standard macro-economic framework accounting for changes in socio-economic variables (population, GDP – gross domestic product, commodities output and demand, prices, international trade) is connected to the social and environmental indicators considered in APPS. More information about the list of considered indicators can be found at APPS Indicator Computation.
Benchmark year for indicators calibration: 2007
Time horizon for the assessment: 2015-2030
Regions and Sectors: while the assessment of current well-being is provided for the 139 countries, projecting future sustainability requires some aggregation for the sake of computation. There are 45 countries/regions considered in the model simulations. The countries singled out are selected on the basis of their relevance for sustainability (high concern for social and environmental issues) as well as population size (covering 70% of World population). Each socio-economic system is then divided into 22 sectors providing commodities/services, chosen according to their contribution to sustainable development indicators.