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International Futures Help System

Dominant Relations: Economics

In any long-term economic model the supply side has particular importance. In IFs, gross domestic product (GDP) is a function of multifactor productivity (MFP), capital stocks (KS), and labor inputs (LABS), all specified for each of six sectors. This approach is sometimes called a Solowian Cobb-Douglas specification, but IFs helps the user get inside the multifactor productivity term, rather than leaving it as a totally exogenous residual.

The following key dynamics are directly related to the dominant relations:

  • Multifactor productivity is a function partly of exogenous specification of an annual growth rate in it for the systemic technology leader, base rates of relative technological advance in other countries determined via an inverted U-shaped function that assumes convergence with the leader, and of an exogenously specified additive factor for control of specific regions or countries.
  • Multifactor productivity is, however, largely an endogenous function of variables determined in other models of the IFs system representing the extent of human, social, physical, and knowledge capital; their influence on production involves coefficients that the user can control.
  • Capital stock is a function of investment and depreciation rates. Endogenously determined investment can be influenced exogenously by a multiplier and the lifetime of capital can be changed.
  • Labor supply is determined from population of appropriate age in the population model (see its dominant relations and dynamics) and endogenous labor force participation rates, influenced exogenously by the growth of female participation.

The larger economic model provides also representation of and some control over sector-specific consumption patterns; trade including protectionism levels and terms of trade; taxation levels; economic freedom levels; and financial dynamics around foreign aid, borrowing, and external debt.