Name: Model of Innovation in Dynamic Low-Carbon Structural Economic and Employment Transformations (MINDSET)
Type: Macroeconometric
Institution: World Bank
Documentation: World Bank Group Jobs working paper
Geographic coverage: Global
Description: MINDSET is a macroeconometric input-output model that assesses the impacts of climate change, adaptation measures, and mitigation strategies with high sectoral and regional granularity. Its core element is a detailed network of linkages between sectors and countries along global value chains, based on a global, multiregional IO database and energy balances from the International Energy Agency.
Questions to be answered/variables considered: Key outputs include standard macroeconomic indicators, plus sectoral emission levels, production, and employment. Links with national labor force and household survey data yield impacts on workers and consumers across income strata, skill levels, occupation types, and subnational provinces. The model does not include budgetary accounts or debt. MINDSET can be used to assess sector- or country-specific, single- or multi-country scenarios according to the above variables, and it can be linked to Future Technology Transformation (FTT) models to capture within-sector transitions and their impact on, for instance, tax revenue.
Strengths:
- MINDSET combines the strengths of IO analysis (being empirically grounded) with those of demand-led macroeconomic models.
- It captures direct, indirect, and induced supply-chain impacts that feed into fiscal multipliers, and incorporates sectoral and cross-country spillovers from climate change, domestic climate policies, and policies of other countries.
- In contrast to other CGE and aggregate models, it can inform on short-term distributional and sectoral frictions.
Limitations:
- Scenarios where capacity constraints matter require off-model analysis, though supply-side constraints (e.g., from labor immobility and climate damages) are starting to be introduced.
- Within-sector transformations require input from other models.
Assumptions:
- The model assumes bounded rationality and knowledge limitations.
- It assumes derived demand will be met by additional supply.
- Excess labor supply is assumed to be at existing wages (i.e., involuntary unemployment or underemployment), in contrast to equilibrium assumptions.
- It assumes there is no crowding out of investment (i.e., spare economic capacity).
Use: Access to MINDSET is currently available only via World Bank engagement, though plans for a web-based user interface and an open-source version exist for the medium- to long-term. Scenario and model parameter templates are available. MINDSET has been used to inform estimates of macro, sectoral, distributional, and employment outcomes in three Country Climate Development Reports and further country-specific analyses.
Development: MINDSET is a relatively new model with many ongoing developments. Key components, including price formation, investment, and trade effects, are being revised to improve empirical relationships, and financial stocks and flows are to be better integrated. A supply-side treatment based on economic complexity will inform labor supply bottlenecks and potential suppliers of new technologies and minerals.