Repeatable Models to Measure Global GDP Growth
Centennial’s models for growth draw scenarios and illustrate the consequences of a diverse range of long-term factors. Our proprietary models can be applied at the global or national levels—and consider a multitude of variables that are economic, policy-related and cultural in nature.
The Centennial Growth Model
GDP (total, per capita, and median per capita) is projected for 187 countries as a Cobb-Douglas function of labor force, capital stock, and total factor productivity. To better capture cohort-specific trends, labor is projected separately for men and women, each for seven age groups, using autoregressions. Capital stock is projected by estimating an initial capital stock for the earliest year possible and then adding yearly investment and subtracting yearly depreciation.
For productivity growth, all countries begin with a default growth rate, which represents the advance of global best practice. In addition to this, failed states suffer a productivity growth penalty. In addition, research has shown that some growth differences between developing or middle-income countries can be successfully modeled by dividing them into two groups—“non-convergers” experiencing a stagnation of growth and fast-growing “convergers” whose productivity is quickly catching up to global best practice. The latter reflects technology leap-frogging, technology transfers, the diffusion of innovative management and operational research from advanced economies, etc. In the model, converging countries receive a boost in productivity growth. The US is taken as the global best practice, and the further behind the US productivity that a given converger’s is, the faster the catch up.
For a selected base year, the model generates GDP in constant USD, PPP GDP in constant PPP dollars, and GDP at expected market exchange rates. It projects the latter by estimating movements of a country’s real exchange rate. This is calculated by estimating a hypothetical relationship between real exchange rates and the ratio of a country’s GDP PPP per capita to that of the US. In the model, a country’s actual projected real exchange rate converges towards the point in this hypothetical relationship that corresponds to its income.
The model also projects the size of the middle and upper classes using GDP PPP. It assumes an income distribution for each country, distributes the nation’s GDP PPP to its citizens accordingly, and estimates what share of the nation’s income is available for consumption in order to quantify the size of each class. It also projects poverty and poverty-related indicators, and estimates other income distribution measures such as decline and percentile incomes. It estimates both income and consumption levels, by estimating consumption rates.
Additionally, the model can project total bilateral trade between any two countries or regions. It also estimates infrastructure stocks, access, and investment requirements (new capacity, maintenance, and total) for ten sectors: Airports, Electricity, Fixed Broadband, Landlines, Mobile Phones, Ports, Rail, Roads, Sanitation, Water.
The model is capable of estimating food consumption (total and per-capita) for various commodities, including Rice, Poultry, Fish, Fish Sauce, Beef, Fruit, Pork, Eggs, Maize, Casava, Tofu and Sugar. It can also estimate agricultural production. Finally, the model can incorporate assumptions about terms-of-trade changes.