Introduction

The development of a baseline scenario is an important component of assessing the impact of a policy issue with a dynamic model. A baseline depicts how the world economy might be expected to change, over a given period of time, if the policy were not implemented. The baseline scenario should therefore reflect as closely as possible the changes expected to occur in the world economy, excluding the particular policy of interest.

The components of the baseline will depend on the regional/sectoral aggregation chosen for the study and the policy being examined. A good baseline will include projections for macroeconomic variables – such as real GDP, population, technological change, and primary factor growth rates – for each of the regions being examined, as well as key policies that have already been agreed on or are expected to affect the regions/sectors or the policy scenario being examined. New baselines are often developed each time a new policy issue is addressed. For example, a baseline built to examine China's accession to the WTO will not be suitable for examining the impact of free trade agreements within Southern Africa, most notably because the regional aggregation will differ between the two simulations but also because the policies we would want to include in the baseline would differ considerably.