FUGI global modeling system (FGMS200): Integrated global model for sustainable development

Journal of Policy Modeling24 (2002) 561–590

FUGI global modeling system (FGMS200)Integrated global model for sustainable

development

Akira Onishi∗

Center for Global Modeling, FOST (Foundation for Fusion of Science and Technology),1-4-24 Hiyoshi-honcho, Yokohama 223-0062, Japan

Received 1 June 2001; received in revised form 1 December 2001; accepted 1 March 2002

Abstract

The FUGI global model has been developed as a media of providing global informationto the human society and finding out possibilities of policy coordination among countriesin order to achieve sustainable development of the world economy under the constraintsof changing global environment. The FUGI global model 9.0 M200 classifies the worldinto 200 countries/regions where each national/regional model is globally interdependentthrough international trade, export/import prices, financial flows, ODA, private foreigndirect investment, exchange rates, stock market prices, and policy information, etc. Thepurpose of this article is twofold; the one is to introduce the outline of the FUGI global model9.0 M200PC which might be expected to open a new frontier of economic science in the21st century and the other is to make the baseline projections of the world economy duringthe period 2001–2010 as well as some policy scenario simulations using the FUGI globalmodeling system (FGMS). This modeling system is officially used by the United NationsConference on Trade and Development (UNCTAD) for the projections of the world economyand policy scenario simulations since 2000. The latest software of FGMS (FGMS200) forthe Windows 98/2000/xp is also available.© 2002 Society for Policy Modeling. Published by Elsevier Science Inc. All rights reserved.

Keywords:FUGI global model 9.0 M200PC; FUGI global modeling system (FGMS200); Integratedglobal model for sustainable development

∗ Tel.: +81-45-562-5432; fax:+81-45-562-6132.E-mail address: [email protected] (A. Onishi).

0161-8938/02/$ – see front matter © 2002 Society for Policy Modeling.PII: S0161-8938(02)00127-8

562 A. Onishi / Journal of Policy Modeling 24 (2002) 561–590

1. Introduction

In the 21st century it is expected that integrated progress of science, technology,and new economic development will be seen in the human society where a glob-ally interdependent complex system is. The information technology innovationwill give tremendous impacts on human life, culture, and economic development.Historically speaking, human behaviors under the global cultural changes imposedby the increasingly interdependent global human society are a rather new experi-ence and challenge for the human society.

Under these circumstances, theFutures of Global Interdependence(FUGI)global model seems likely to play a significant role in efforts to envisage the futureof global interdependence and to provide global information on the economicdevelopment and environmental changes under alternative policy scenarios for thesustainable development.

Project FUGI was started in 1976 with the cooperation of three Japanese in-stitutions, namely, the University of Tokyo, Osaka University, and Soka Univer-sity, under the sponsorship of the National Institute for Research Advancement inTokyo. The original FUGI model consisted of three parts: a Global Input–OutputModel (GIOM), a Global Resources Model (GRM), and a Global Economic Model(GEM), Types I, M15. Yoichi Kaya (Faculty of Engineering, University of Tokyo,Yutaka Suzuki, Faculty of Engineering, Osaka University) and the author coordi-nated the designing of these models, respectively (Onishi, 1977). Work in progresswas reported at the IIASA global modeling symposium in 1977 and the years fol-lowing (Onishi, 1980). The first generation FUGI global economic model (TypeI, M15) designed by the author was the development of the Multi-Nation Eco-nomic Model which was originally designed by the author in 1965 and appliedthe 15 countries in Asia for the purpose of projections of the Asian economy(Onishi, 1965). Drawing on experiences with global modeling in the 1970s, theauthor developed a fourth-generation FUGI global economic model (Type IV,M62) that divided the world into 62 countries/regions and consisted of approx-imately 30,000 equations. It was first made public at a seminar on comparativesimulations of global economic models held at Stanford University, June 25–26,1981 (Onishi, 1981). The United Nations Secretariat, Department of InternationalEconomic and Social Affairs, Projections and Perspective Studies Branch for thepurpose of long-term projections and policy simulations of the world economysoon afterward adopted this model for use. It was used from 1981 to 1991, whenit was replaced by the new generation FUGI global model, Type VII, M80.

For the period 1985–1986, a new generation of the FUGI global model wasdesigned as aglobal early warning system for displaced persons(Onishi, 1986a,1986b, 1986c, 1986d, 1987, 1990). During the period 1990–1995, the FUGI model7.0 M80 was designed as an integrated global model for sustainable development(Onishi, 1993, 1994a, 1994b, 1995a, 1995b).

During the period 1991–1999, the author designed a significant new softwaresystem for global modeling. This expert software system, named as FUGI Global

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Modeling System (FGMS) using an IBM R/S 6000 workstation was researched anddeveloped as a package for specific use in making computations for the FUGI globalmodel 9.0 (Type IX) M200/80 (Onishi, 1991, 1993, 1994a, 1994b, 1995a, 1995b,1996a, 1997a, 1997b, 1998, 1999, 2001a) and M200 (Onishi, 2000). The FGMSsoftware system consists of (1) database including ORG, CNT, and RGN; (2) EST,estimating parameters of the model; and (3) SIM, simulations using the model. Itcan carry out automatic estimation of a given set of structural parameters of theFUGI model, using OLS as well as MLBM and forecast simulations efficiently,using Automatic Error Correction System (AECS).

In 2000, this expert system has entered the new stage ofFGMS200usinga personal computer (Windows 2000) for running the FUGI global model 9.0,M200PC. This latest M200 model, consisting of more than 150,000 equations,classifies the world into 200 countries/regions so that the model can produce theforecast simulations of the sustainable global development with interdependent200-national/regional developments (Onishi, 2001b, 2001c).

The global model simulation exercises using M200PC cover the baseline pro-jection of the global economy, 2001–2030. The model can provide information notonly on the baseline projections but also alternative policy scenario simulations.

2. Outline of FUGI global model 9.0 M200PC

2.1. Regional classification

The FUGI global model 9.0 M200PC divides the world into 200 countries andregions. For three major groupings there are (1) developed or advanced marketeconomies (AME); (2) developing economies (DGE) and (3) economies in tran-sition (EIT). The AME grouping contains the following sub-groupings; these aredeveloped market countries including the developed Asia-Pacific, North Amer-ica, member countries of the EU, and other Western Europe. The DGE groupingcontains the following sub-groupings as Asia-Pacific (subdivided into East Asia,Southeast Asia, Southwest Asia, and Pacific Islands); Middle East; Africa (sub-divided into North Africa and Sub-Saharan Africa); Latin America & Caribbean;and Mediterranean. The EIT grouping includes two sub-groupings: (a) East Eu-rope and (b) the former USSR. Ultimately, this global model divides the world as awhole into 200 countries/regions. Because most of developed market economies,DGE and EIT are treated as country units, the model has the advantage of be-ing able to analyze precise country-specific relationships within the framework ofglobal interdependence. We have designed five deferent global table formats suchas GM (above-mentioned regional classification), EU (for the European Commis-sion), UN (for the United Nations classification), UNCTAD (for United NationsConference on Trade and Development classification), and WB (for the WorldBank classification). It is worth noting that a user of FGMS200 can easily makehis own format (see Appendix A).


2.2. Basic characteristics of the model

First of all, the FUGI global model 9.0 is designed to respond to the currentstates of the world economy and incorporates the varying characteristics of theeconomic systems in (1) the developed market economies, (2) the DGE, and (3)EIT, respectively. The latest FUGI model 9.0 M200 classifies the world into 200countries/regions. It makes possible to analyze the complex global systems thatcharacterize these economies although the model is on the other hand forced toadapt to poor data situations prevailing in both developing and EIT. It is worthnoting that the model incorporates dynamic supply–demand integrated systems,which allow not only demand-oriented modeling but modeling for the supply sideas well. If a given country’s potential GDP exceeds its real GDP derived from thedemand sub-system, the model behaves as if it were a “demand-oriented model”such as is used for the most developed market economies. If a given country’s realGDP exceeds its potential GDP as derived from production sub-system, the modelworks as a “production-oriented model.” Both supply and demand features areincorporated into the FUGI global model’s system structure, the model functionsfor the most part as a “production-oriented model” for the most of the DGE as istrue also in the case of the EIT.

Secondly, the FUGI global model 9.0 M200 has country-specific characteristics,although defined in such a way as to allow general applicability. The economic sys-tems of the US and Japan, for example, are not identical and the system structuresof these economies are subject to change over time. Accordingly, by designing aglobal model that is as far as possible universally applicable, and then choosingfrom it the most appropriate variables as well as those functions that fit best inmaking both baseline and policy simulations regarding individual countries or re-gions in given time periods, modeling can be carried out so that the coherence ofthe system as a whole might not be lost.

A third characteristic is that the economic system treated in the newest FUGIglobal model 9.0 M200 is extraordinarily large in scale. The world subdi-vided into 200 countries/regions, and into each of these 200 national/regionalmodels are incorporated nine major sub-systems. In particular, economic de-velopment system as a core includes 11 sub-blocs. The total number of equa-tions is more than 150,000. In order to operate the M200 model using apersonal computer (Windows 2000), the newest FGMS200 software packageshave been developed on the basis of the author’s expert knowledge of globalmodeling.

A fourth characteristic of the FUGI global model is the special attention, whichit gives to analyzing inter-linkages of environment, development, peace, and hu-man rights in the relationships among countries in the global human society. Thismeans that the FUGI model incorporate not only the sort of “hard variables” foreconomic modeling but also for “soft variables” such as peace and human rights.Consequently the FUGI global model 9.0 M200 will expect to play a role of globalearly warning system for refugees derived from (1) destruction of environment,


(2) failures in development, (3) lack of peace and security, and (4) violation ofhuman rights in the 21st century.

2.3. Model software

In 2000, the author designed a significant new software system for integratedglobal modeling using a personal computer (Windows 2000). This expert softwaresystem, named asFGMS200was researched and developed as a “package” forspecific use in making computations for the FUGI global model 9.0 M 200PC. Inaddition to the FUGI model database system (FUGIDB), theFGMS200softwaresystem consists of (1)CONTROL, data file control systems for listing, loading,printing, and updating country (CNT), region (RGN) as well as variable (VAR)data files; (2)DSERVE, supplementary data servicing programs for updating andstoringRGN.DATfile, etc.; (3)ESTIMATE, estimating parameters of the model,using Automatic Parameter Estimating System (APES); (4) SIMULATE, makingsimulations using the FUGI global model; (5)OUTGT, printing out simulationresults in forms of 170 world tables, each country tables and world trade matri-ces; and (6)UTILITY, receiving data fromFUGIDB to initialize and overwrite thetime-series dataCRGN.DAT, as well as to create variable data files,VAR.DAT. Auser ofFGMS200can carry out automatic estimation of a given set of structuralparameters of the FUGI global model, using OLS as well as MLBM and makingforecast simulations efficiently, using AECS. This expert AI system has alreadypassed through the experimental stage and entered the stage of practical appli-cation. It is hoped that theFGMS200, together withFUGIDB can contribute toprogress in the integrated global modeling in the 21st century (for further detailsof FGMS200, seeUsers Guide).

2.4. Model structure

The FUGI global model 9.0 M200PC classifies the world into 200 coun-tries/regions. Each country/regional model is globally interdependent throughdirect linkages of the world trade matrices, export/import prices, primary com-modities prices, foreign exchange rates, official development assistance, privateforeign direct investment, external debt, interest rates, etc. It is also globally inter-dependent through indirect linkages such as population changes, economic devel-opment policies, energy policies, environmental polices, etc.

Each national/regional model consists of integrated nine major sub-systems: (I)population, (II) foods, (III) energy, (IV) environment, (V) economic development,(VI) peace and security, (VII) human rights, (VIII) health care, and (IX) digitaldivide. Economic development system as a major core of the model has eleveneconomic sub-blocs. It includes (1) labor and production at constant prices, (2)expenditure on GDP at constant prices, (3) income distribution: profit–wage, (4)prices, (5) expenditure on GDP at current prices, (6) money, interest rate andfinancial assets, (7) government finance, (8) international balance of payments, (9)


international finance, (10) foreign exchange rate, and (11) development indicators(for further details of the model, see Onishi, 2001b).

3. Some examples of estimated parameters of the model

It is worth noting that through the use of FGMS200, automatic estimation offull set of parameters of the model is carried out very efficiently by selecting eitherordinary least squares (OLS) or maximum likelihood method (MLBM). Becauseof constraints of spaces, we cannot show the full set of parameters of the model,but illustrate only a few examples for reference purpose.


4. The baseline projections of the world economy, 2001–2010

The 21st century will be an age of integrated technology innovations in thefields of information, biotechnology, new energy (as solar and superconductor),new materials, space-technology, etc. On the other hand, it is expected that thiscentury will be an age of terrorism and refugees. Therefore, we can not predictfutures of the world economy, because the futures would have certain degrees offluctuations that we might depict the futures as either optimistic or pessimisticimages. Under such circumstances, we would be better to start with the baselineprojections of the world economy using the FUGI global model.

The baseline projections mean that what will be most likely futures, if thestructural parameters of the model, estimated from the past data covering latestinformation, would not be drastically changed. Because of advanced modelingtechnology, we can efficiently carry out the baseline projections. Everyday, weinput new information and data to modify the initial conditions, so that the baselinesprojection might accommodate with ever changing the world economy.

It is worth noting that the future of the world economy is not determined bydestiny but could be changed by policy coordination. This is why we have designedthe FUGI global model not only to make the baseline projections but also alternativepolicy scenario simulations.

According to the baseline projections, the world economy is expected to be2.5, 3.2, and 2.9% during the periods 2001–2005, 2006–2010, and 2001–2010,following an average growth of 2.6% during the 1990s. For the developed marketeconomies taken as a whole, the average annual real economic growth rate will be2.0% during the 2001–2005 and is expected to recover to an average 2.8% in theperiod 2006–2010. It is worth noting that the US economic growth rate is expectedto decline from 4.1% in the year of 2000 to 1.2% in 2001, because of doubleshocks of stock market crash and September 11 incident. For the period from 2001to 2005, the annual percentage growth rates of the US economy will be 2.3%and sustain 3.2% in 2006–2010, because of an increase in defense expendituresand large-scale tax reductions. Although the Japanese economy, simultaneously,declines to minus growth (−1.0%) in 2001, the annual average of growth ratesare expected to recover 0.7% in 2001–2005 and to attain 2.2% in 2006–2010.On the other hand, the EU economy as a group is expected to sustain 2.2% in2001–2005 and 2.7% in 2006–2010 as a result of creating Euro-zone in 2002 (seeFig. 1).

In the DGE, the average growth rate of 3.1% in the 1980s was acceleratedto an average 4.6% in the 1990s. The slowing down of real economic growthin the developing countries as a group may be anticipated, with the average an-nual growth rate of 4.0% for the period 2001–2005, sustaining 4.4% in 2006–2010.

It is worth noting that the average annual growth rate of the DGE in the Asian-Pacific region is expected to fall from 6.5% in 1991–2000 to 4.9% in 2001–2005 butto recover to 5.5% in the following periods, 2006–2010. The Chinese economy

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Table 1Projections of global economy for the period 2001–2010

Annual average growth rates of real GDP (at 1995 prices) (%)

1991–1995actual

1996–2000estimate

1991–2000estimate

2001–2005projection

2006–2010

2001–2010

World 2.0 3.2 2.6 2.5 3.2 2.9

Developed marketeconomies

1.7 3.0 2.3 2.0 2.8 2.4

Developed Asia-Pacific 1.6 1.5 1.5 0.9 2.2 1.6Japan 1.4 1.3 1.3 0.7 2.2 1.4

North America 2.1 4.4 3.2 2.4 3.2 2.8Canada 1.5 3.3 2.4 3.0 3.6 3.3United States 2.2 4.4 3.3 2.3 3.2 2.7

Western Europe 1.3 2.5 1.9 2.2 2.8 2.5EU 1.3 2.6 1.9 2.2 2.7 2.4

France 1.1 2.7 1.9 2.1 2.5 2.3Germany 1.4 2.0 1.7 1.2 2.4 1.8Italy 1.1 1.6 1.4 2.5 2.7 2.6United Kingdom 1.3 2.5 1.9 2.2 2.6 2.4

Developing economies 4.9 4.2 4.6 4.0 4.4 4.2Asia-Pacific 7.6 5.4 6.5 4.9 5.5 5.2

East Asia 8.7 6.4 7.5 5.2 5.6 5.4China: mainland 12.1 8.3 10.1 7.0 6.5 6.7

Southeast Asia 7.2 3.0 5.1 3.9 5.1 4.5South Asia 5.2 5.6 5.4 5.3 5.5 5.4

India 5.3 6.1 5.7 5.6 5.7 5.6Middle East 1.6 2.5 2.0 2.8 2.9 2.9Africa 1.5 3.7 2.6 3.4 2.8 3.1

North Africa 1.8 4.1 3.0 3.0 2.4 2.7Sub-Saharan Africa 1.3 3.4 2.3 3.6 3.1 3.4

Latin America andthe Caribbean

3.6 3.1 3.3 2.7 3.0 2.9

Brazil 3.1 2.2 2.7 2.6 3.0 2.8Mediterranean 1.2 3.9 2.5 3.6 4.3 4.0

Economies in transition −6.9 1.8 −2.6 3.7 4.3 4.0Eastern Europe −0.1 3.1 1.5 3.2 3.3 3.3CIS (former USSR) −9.8 0.9 −4.6 4.0 4.9 4.5

Russian Federation −9.1 0.8 −4.3 4.5 5.4 5.0

Source: Projections and simulations using the FUGI Global Model 9.0 M200PC.

recorded a high average annual economic growth of 10.1% during the period1991–2000, but will be also slowing down its high growth toward the end of thecoming decade. The Chinese GDP growth rate of an average 7.0% in 2001–2005is expected to decease to 6.5% in 2006–2010 (see Table 1).

For reference, the baseline projections of money market rates and discount ratesof EU, Japan, and US as well as Euro and Yen exchange rates per US dollar forthe period 2001–2010 are shown in Figs. 2–4.

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4.1. International per capita income disparity

When we examine the results of the baseline projections of global populationand economy, we see that the future path of the global economy is still in someways unstable because of increasing international per capita income disparity. TheSouth IPCID, international per capita income disparity is expressed in terms ofaverage per capita income (at 1995 constant US dollar prices) of the whole worldequal to 100. It will be slightly improved from 27 in 1995 to 28 in 2000, 31 in2010, while the North IPCD will steadily increase 523 in 1995 to 540 in 2000, and571 in 2010.

It is worth noting that the South–South per capita income disparities will beenlarged. The Asia-Pacific will improve from 19 in 1995 to 21 in 2000, 26 in 2010;the rest of the South will hardly improve for the periods. In particular sub-SaharanAfrica tends to decrease from 11.5 in 1995 to 10.9 in 2000 and 10.2 in 2010. TheseIPCID between the North and South as well as between the South and South willnot be improved even if IPCID is measured by real GDP at US dollar prices interms of Purchasing Power Parity (GDP#PPP).

On the other side, there is a hope that developing countries’ share of real GDP(in terms of 1995 constant dollar prices) in the world will be enlarged in the 21stcentury. It is expected that the shares of the developing countries as a group willincrease from 21.2% in 1995 to 22.3% in 2000 and 25.3% in 2010, while those ofthe developed countries as a group will decrease from 76.1% in 1995 to 75.2% in2000 and 71.8% in 2010. It is expected that the share of US will slightly decreasefrom 26.3% in 2000 to 26.0% in 2010, while that of EU will increase from 28.8%in 2000 to 29.5% in 2010, because of possible enlargements of EU member states(although the share of current EU member states will decrease from 28.8% in 2000to 27.6% in 2010). It seems likely that the share of Japan will decrease from 14.9%in 2000 to 13.0% in 2010.

On the other hand, it is reasonably expected that the shares of the develop-ing countries in the Asia-Pacific as a group will increase from 10.2% in 1995to 11.3% in 2010. In the Asia-Pacific, the share of China including Main-land, Hong Kong, and Macao will increase from 3.6% in 2000 to 5.0% in2010.

It is worth noting that shares of nominal GDP in terms of current US dollar pricesmight be different from those of real GDP except in 1995. This is particularly truein the case of the United States. It is expected that the share of US will maintainfrom 27.2% in 2000 to 27.1% in 2010, while that of EU will increase from 28.0%in 2000 to 29.8% in 2010, because of enlargements of EU member states (althoughthe share of current EU member states will decrease from 28.0% in 2000 to 27.1%in 2010). It seems likely that the share of Japan will decrease from 11.2% in 2000to 10.9% in 2010.

On the other side, it is reasonably expected that the share of China includingMainland, Hong Kong, and Macao will increase from 4.2% in 2000 to 5.3% in2010.


5. Alternative scenario simulations: policy exercises

5.1. Scenario A: Chinese joining WTO scenario

(1) It is assumed that after the immediate period of joining WTO, the averagecustoms tariff rate will be cut down from 22.1% in 2001 to 17.0% by 2005.

(2) In order to assess possible impacts derived from cut backs of customs tariffrates, it is assumed that the customs tariff rate of imported cars will bedrastically cut down from 80 to 100% in 2000 to 25% by 2005. Majorvehicle exporting countries are Japan, US, Germany, France, UK, Italy,Spain, Sweden, and Korea.

(3) It is expected that non-tariff barriers (NTB; i.e., price differentials betweendomestic and imported foreign products and serves) will be gradually mit-igated.

(4) It is expected that unemployment rates might be increased because of re-structuring the economy after the immediate period of joining WTO.

(5) Foreign exchange rates will be freed from severe interference.

According to Scenario A simulation results, it is expected that real GDP growthrates of the Chinese economy will be decreased by 0.006 in 2001 and 0.444 per-centage points in 2005 compared with those of the baseline. The imports willincrease rather than exports so that the exchange rates against the US dollarsmight be slightly weaken compared with those of the baseline. It is worth notingthat immediate positive impacts of domestic consumers price cut down derivedfrom cutbacks of customs tariff rates might be offset by depreciation of Chinesecurrency. On the other hand, it is expected that unemployment rates might be in-creased because of restructuring the economy after the immediate period of joiningWTO.

As a matter of fact, the developed economies, in particular, vehicle exportingcountries such as Japan, US, Germany, France, UK, Italy, Spain, and Sweden willreasonably expect more export gains to China. On the other side, the developingcountries will have less opportunity to expand their export gains to China becauseof slowing down of GDP growth rates of Chinese economy.

5.2. Scenario B: Chinese joining WTO scenario

In order to offset negative impacts derived from cut backs of customs tariff ratesafter the immediate period ofChinese joining WTO scenario A, it is assumed asfollows:

(1) The private foreign direct investment to China is expected to increase inlooking for new business ventures. It is assumed that private foreign directinvestment to China might be increased annually by 1.5 billion US dollarscompared with the baseline projections starting from 2001 to 2005.


(2) It is hoped that the expansion of the Chinese domestic market may bringabout positive impacts not only to China but also to the rest of theworld.

According to Scenario B simulation results, it is expected that real GDP growthrates of the Chinese economy will increase from 0.22 in 2001 to 0.85 percentagepoints in 2005 compared with those of the baseline. The imports, however, willincrease rather than exports so that the exchange rates against the US dollars mightbe slightly weakened compared with those of the baseline. It is worth noting thatnegative impacts of GDP growth slowing down derived from cutbacks of customstariff rates will be offset by increased inflow of private foreign direct investment.On the other hand, it is expected that unemployment will be reduced on accountof new investment opportunities. (Fig. 5)

It is reasonably expected that the developed economies, in particular, vehicle-exporting countries might expect more profit gains from China in place of exportearnings through vehicle exports. On the other side, the developing countries willhave more opportunity to expand their export gains to China because of acceleratingof GDP growth rates of Chinese economy.

5.3. Scenario C: impacts of slowing down of the US economy

As shown in the baseline projections, the US economy plays a greater role ofthe sustainable development of the world economy. This exercise reveals impactsof slowing down of the US economy. According to the FUGI model simulationexercise, it is expected that the US economic growth rate will decrease by 2 per-centage points, if the US stock market prices is further decreased by 34 percentagepoints in 2001.

As a result of the decrease in values of financial assets, it is reasonably expectedthat private consumption expenditures will be immediately depressed. This thenwill induce the further slowing down of the US economic growth via decreasein operating surplus and fixed investments. The real GDP growth rates of theUS economy will be further decreased by 0.412 percentage points even in 2005,although this impact will be gradually mitigated over time.

Through complex international linkages, the global economy will be also nega-tively affected. It is worth noting that negative impacts of the US economy derivedfrom the falling down of the US stock market values might give negative reper-cussions around the world. As a matter of fact, the developed market economieswill be suffered to the large extent. It is expected that the Japanese economy, inparticular, might be seriously affected from the US economic setbacks in 2001.The Japanese economic growth rates will decrease by 0.31 in 2001 and average0.24 percentage points for the period 2001–2005. On the other side, the develop-ing countries will have less suffered from of slowing down of the US GDP growthrates. However, it is expected that the newly industrializing economies (0.26%) aswell as ASEAN (0.34%) will be seriously suffered from immediate impacts from

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the setbacks of the US economy, while Latin American economies will be sufferedfor the much longer periods.

5.4. Scenario D: the Japanese fiscal policy: decreasing expenditures

According to the baseline projections, it is expected that new issues of theJapanese government bonds will be maintained at around 30 trillion yen for theperiod 2001–2010. The government has started with decreasing new issues ofgovernment bonds in the process of structural reform from 2001. Everyone knowsneeds for structural reform on public corporations in order to evade wastages offiscal resources under the severe constraints of deficit financing. Then, it is as-sumed that government bonds will decrease by 10 trillion yen stating from 2002to 2010 by means of decreasing annual expenditures by 10%. This policy exer-cise means that the government expenditures should be almost stagnant. Undersuch policy exercise, an annual average of the Japanese economic growth rateswill be almost zero growth as 0.91% and decreased by 0.79 percentage pointsfor the period 2002–2010 and lowered by 1.1 percentage point in 2010 com-pared with those of the baseline. It is worth noting that if such policy exercise ofcutbacks of expenditures would continue, this negative impact will be graduallyaggravated over time, since needs for new bond issues will be rather increasedbecause of shortage of revenues. It seems likely that the slowing down of the eco-nomic growth rates will induce further deficits of government budget and shouldbring about the further efforts for cutback of expenditures vice versa through vi-cious circles. Therefore, it is not so wise to attain balanced budgets by decreasingexpenditures alone. If the potential growth rates in the future should be sustain-able, needs for increasing both educational and technology assets might not beoppressed.

5.5. Scenario E: the Japanese fiscal policy: cutback of tax rates

In order to evaluate the impacts derived from cutbacks of tax rates in stead of de-creasing government expenditures, it is assumed starting from 2002 asfollows:

(1) Mitigating consumption tax rates in stock dealings and immobile assetstransactions from 5 to 3% for activating stock and immobile assets markets.

(2) Mitigating income tax rates by 5 trillion yen of income and corporate taxesrespectively for activating private consumption and investment for the pe-riod 2002–2010.

(3) Starting from 2006 to 2010, the government expenditures will be decreasedby annual 10% in order to decrease new government bond issues.

It is worth noting that the Japanese annual average economic growth rateswill be 2.4% and increased by 0.69 percentage points for the period 2002–2010

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compared with those of the baseline. It is interesting to note that the growth ratewill attain 3.6% in 2010 in Scenario E, although it will recover only to 1.3% inScenario D in 2010 so that negative impacts derived from cutbacks of govern-ment expenditures might be offset in Scenario E for the period 2006–2010. Theneeds for the government new bond issues will be gradually decreased since 2006and lower than those of Scenario D in 2010, because of increases in governmentrevenues derived from higher growth rates. This is a paradox of tax cutbacks(Fig. 6).

It is not so good policy exercise to cut back the Japanese government expen-ditures in the serious economic situations prevailing in 2001–2002 but rather taxcutback policy exercises should be recommended. It is expected that unemploy-ment rates will be improved in Scenario E, although the rates will be furtheraggravated in Scenario D.

6. Conclusion

The FGMS200 has been developed as a media of providing global informationto the human society and finding out possibilities of policy coordination amongcountries in order to achieve sustainable development of the world economy. Itis worth noting that FGMS200 can operate the FUGI global model 9.0 M200PCusing a personal computer (Windows 98/2000/xp). The development of both thehardware and the software of high-technology computer systems have supportedFUGI global modeling. The FGMS represents a new frontier in economic sciencestimulated by information technology and life science.

Metaphorically speaking, the world’s around 200 countries including the UNand non-UN members can be thought of as “cells” which, when separate andisolated should only act in a disconnected way, each in its own fashion. But whengiven information concerning the global human society, the possibility arises thateach country can take in information on what it ought to best to do, with theresult that through a sort of feedback system the global economy will operatemore smoothly. This is one of the hints given by the recent development of lifescience.

The transmission of information is an important aspect of life functions, abso-lutely essential for the existence and continuation of life. Humans furthermorehave a capacity by which some information is consciously perceived as sig-nals from outside as a result of which new and useful information can then begenerated from inside “human genome” information, taking on, in other words,takes on a self-organizing capacity. There are vital characteristics of the lifephenomenon.

The FUGI global modeling methodology has also received a large impact fromof brain physiology. The human brain is made up of around 6 billion neurons, ornerve cells. The “right brain” has to do with what we call “pattern recognition,”and specializes in the ability to grasp “images” and perceive things as a totality.


The “left brain” displays an outstanding capacity to think logically in terms ofsymbols and words.

A thick belt of the inter-brain ridge links the information inputs handled by theleft and right brains. Images taken in by the right brain are sent to the left brain,where they are logically analyzed and checked out to see if they correspond withreality, and are then fed back again into the right brain. In this way, the brain canmake judgments and produce new information.

The working of the human brain, in which the neurons not only form a networkthrough synapse but recognize each other, has provided some very useful hintsfor the construction of global models. This is because global models have the roleof offering global information. If this information undergoes a feedback processreflecting itself in each country’s actual policies, the future image of the worldeconomy will change with the emergence of global information. In the future,mutual understanding can be expected to increase through global information ex-changes, and it is only with this base that we can begin to talk about possibilitiesfor international cooperation and policy coordination.

The functioning of the individual cells that support human life depends on bothgenetic information and non-genetic information generated through “creative” en-deavors such as learning. It is still in the future for a global model to be developedthat will in fact have a similar capacity for “self-organization.” Perhaps we willfirst have to develop a global system that will be conducive to the employment ofsuch anavant-gardemodel. But in this process, it may nevertheless be expectedthat current global models can give useful policy suggestions.

An important phenomenon discovered through research in biotechnology isthe so-called “fluctuation phenomenon.” It may be appropriately said that thepresence of fluctuations seems to be a basic and necessary element for the evo-lution of life. And again, this is a very important element in thinking aboutthe global economy. Forecast simulations based on present baseline scenariosaccommodate a large degree of “fluctuation” in light of the current unstablesituation.

At the same time, there is of course the possibility of controlling this situationand changing its course through more energetic international policy coordination,or, in the terminology of biotechnology, “dynamic cooperation” among countries.There are indeed many kinds of possibilities for invigorating the global economy,raising its growth rate, greatly reducing world unemployment, and promoting in-novations opening up new 21st century frontiers.

By demonstrating these possibilities through future simulations using the latestFUGI global model, we can exercise alternative policy scenarios for the globaleconomy and can offer suggestions to those responsible for policy-making in theworld’s various countries. In keeping with these new concepts, it will no doubtadvance to new frontiers in economic science, while keeping much of its heritageof traditional economics. We ought to actively pursue this vision in new frontierof economic science, and in this regard we see FGMS as one of the importantintellectual challenges in the 21st century.

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FUGI global modeling system (FGMS200): Integrated global model for sustainable development

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