GRINCOH Meeting 22nd / 23rd November IWH in Halle/Saale The MASST2 Model Roberta Capello, Andrea Caragliu, Ugo Fratesi GRINCOH Growth – Innovation – Competitiveness: Fostering Cohesion in CEE

2 Summary 1.The MASST2 model 2.Structure of the MASST2 model 3.An example of a MASST2 output 4.Structural changes to be introduced in the MASST3 version 5.Future steps Capello, Caragliu, Fratesi

3 Summary 1.The MASST2 model 2.Structure of the MASST2 model 3.An example of a MASST2 output 4.Structural changes to be introduced in the MASST3 version 5.Future steps Capello, Caragliu, Fratesi

The MASST2 model (1) Macroeconomic – Sectoral – Social – Territorial –Model MASST1 published in: -Capello (2007). “A forecasting territorial model of regional growth: the MASST Model”, The Annals of Regional Science, 41 (4): Capello, Camagni, Chizzolini, Fratesi (2008). “Modelling regional scenarios for the enlarged Europe: European competitiveness and global strategies”, Berlin (DE): Springer- Verlag. MASST2 published in: Capello and Fratesi (2012). “Modelling regional growth: an advanced MASST model”, Spatial Economic Analysis, 7 (3): Capello, Fratesi, Resmini. Globalization and Regional Growth in Europe, Berlin: Springer Verlag. 4 Capello, Caragliu, Fratesi

The MASST2 model (2) Objectives Not to produce forecasts, but to produce scenarios for all European regions in years (Previous drafts: Espon DGRegio) All NUTS2 regions of all 27 EU countries (270 regions) Partial equilibrium model 5 Capello, Caragliu, Fratesi

The MASST2 model (3) Characteristics of the model Econometric model Top-down & bottom-up (i.e. distributive and generative) at the same time  regional competition and cooperation Quantitative foresight 6 Capello, Caragliu, Fratesi

The MASST2 model (4) Demand and supply sides in MASST 7 National levelRegional level Supply-side aspects National competitiveness: FDI, unit labour costs Territorial capital Demand-side aspects Aggregate demand (internal and external) Sectoral Mix Capello, Caragliu, Fratesi Main drivers of the model Also matched by supply and demand elements

8 Summary 1.The MASST2 model 2.Structure of the MASST2 model 3.An example of a MASST2 output 4.Structural changes to be introduced in the MASST3 version 5.Future steps Capello, Caragliu, Fratesi

Structure of the MASST2 model (1) 9 Capello, Caragliu, Fratesi

Structure of the MASST2 model (2) Regional growth is the sum of the two (regional and national) components: National growth as the sum of national accounts components (pseudo-identity) 10 Capello, Caragliu, Fratesi

Structure of the MASST2 model (3) National components 11

Structure of the MASST2 model (4) Regional and sectoral components Regional differential shift as the sum of various components (intra- sectoral and inter-sectoral) Industrial and tertiary employments are the result of intra-sectoral productivity and evolution 12 Capello, Caragliu, Fratesi

Structure of the MASST2 model (4) MIX effects are added in the simulation phase through a decomposition 13

Structure of the MASST2 model (5) Exogenous variables in the regional model Trust Energy costs Regional FDIs Sectoral diversity Accessibility High-level professions Structural funds R&D expenditure 14 Capello, Caragliu, Fratesi

15 Summary 1.The MASST2 model 2.Structure of the MASST2 model 3.An example of a MASST2 output 4.Structural changes to be introduced in the MASST3 version 5.Future steps Capello, Caragliu, Fratesi

An example of a MASST2 output (1) 16 Average annual growth rates of: GDPManufacturing employmentService employment Baseline scenario EU Old New Scenario A EU Old New Difference between scenario A and baseline EU Old New Scenario B EU Old New Difference between scenario B and baseline EU Old New Example of aggregate results from the SPAN-3 version Capello, Caragliu, Fratesi

An example of a MASST2 output (2) 17 Capello, Caragliu, Fratesi

18 Summary 1.The MASST2 model 2.Structure of the MASST2 model 3.An example of a MASST2 output 4.Structural changes to be introduced in the MASST3 version 5.Future steps Capello, Caragliu, Fratesi

Structural changes to be introduced in the MASST3 version (1) In the new generation of the MASST model, a set of relevant improvements shall be introduced, with the aim to improve the model, and account for relevant issues previously left outside its scope. In particular, we aim at endogeneizing: Public expenditure growth rate; Urban performance (population) Innovation. Besides, the MASST3 model will also model the current crisis’ effects on regional growth. 19 Capello, Caragliu, Fratesi

Structural changes to be introduced in the MASST3 version (2) 20 Capello, Caragliu, Fratesi a. The need for endogenizing public expenditure

Structural changes to be introduced in the MASST3 version (3) 21 Capello, Caragliu, Fratesi b. The need for endogenizing innovation ESPON KIT Project Average share of product innovation

Structural changes to be introduced in the MASST3 version (3) 22 Capello, Caragliu, Fratesi c. The need for endogenizing the urban structure

23 Summary 1.The MASST2 model 2.Structure of the MASST2 model 3.An example of a MASST2 output 4.Structural changes to be introduced in the MASST3 version 5.Future steps Capello, Caragliu, Fratesi

24 Future steps At the next GRINCOH meeting a first version of the MASST3 model will be presented. MASST3 will be at the basis of WP9. Capello, Caragliu, Fratesi

And, for your attention, 25 Capello, Caragliu, Fratesi