Microcomputer Based Input-output Modeling

Applicatons To Economic Development

Daniel M. Otto

• Publisher: CRC Press
• Year: 2019
• ISBN:
  9780429710346
• Edition: 1
• Topic: Économie
• Subtopic: Macroéconomie

This book discusses recent developments in Input-Output (I/O) models for microcomputers and applications of I/O models in regional studies. It provides background information on traditional I/O models and a set of working examples of I/O applications for users.

1
An Introduction to Regional Input-Output Analysis

Steven E. Hastings and Sharon M. Brucker

Introduction

Sound economic development decisions require information about the impacts of economic growth and/or decline and the relative benefits and costs of alternative development strategies. Increasingly, university researchers, Cooperative Extension personnel and state and local development officials are being called upon to provide this information. This is as true in the many communities experiencing economic growth as in communities facing stagnation or economic decline. In the former group, the problem is one of managing the growth, e.g., what impact would growth in the banking industry have on the housing industry or transportation system, or what impact would growth in the summer home market have on the agricultural sector? In the latter group, the question is how to stimulate economic growth. Typical issues would be: what will be the impact of a manufacturing plant closure or what resources does the community have to offer to potential industries seeking a plant location?

Attempts to answer these and many similar questions have led to the continued development and increased use of complex analytic models to assess economic impacts; computerized input-output, industrial location, demographic and fiscal impact models are readily available to the economic analyst. However, the use of these models must be accompanied by a concomitant familiarization with the potential uses, underlying assumptions, data requirements, weaknesses and strengths of the models. Without this familiarity many analytic models and the information they provide will be unused, underused, or misunderstood.

While there are many methods of regional analysis (Isard, 1960) (Richardson, 1972), there has been renewed interest in and use of regional input-output in recent years.¹

The purpose of this chapter is to familiarize the reader with the theoretical framework, construction and use of regional input-output models. The description of the analytical framework of an input-output model includes a discussion of the components of the model, a section on analytic measures derived from the model, and a section on the assumptions of the model. A final section presents the phases of model planning, construction and use, including some of the inherent limitations and problems. Finally, some suggestions for effective use of the model will be provided.

Input-output analysis is frequently chosen for regional analysis because it provides several types of information. It is an excellent descriptive tool, showing in detail the structure of an existing regional economy. It provides important information on individual industrial sector size, behavior and interaction with the rest of the economy. It shows the relative importance of sectors in terms of their sales, wages, and employment. It also provides a way to predict how the economy will respond to exogenous changes or changes that are planned. Therefore, it is useful in prescriptive exercises where various actions are being considered and the relative merits are to be determined based on alternative outcomes.

The Basics of Input-Output Analysis

This section will present in nontechnical terms the basic formulation of an input-output model. Similar treatments can be found in Trench and Frick (1982), Bills and Barr (1968), and Brucker and Hastings (1984). Readers interested in a more technical discussion should see Miemyk (1965) or Miller and Blair (1985).

Input-output analysis attempts to quantify, at a point in time, the economic interdependencies in an economy, such as a nation or a state. In this analysis, all economic activity is assigned to one of two types of sectors: production or final demand. Production sectors (e.g., agriculture, manufacturing, trade) represent all establishments in the region producing a specific product or service. The output levels of production sectors are determined within the model and are therefore termed endogenous to the model. Sectors representing final demand may include households, government, foreign trade. The levels of activity in these sectors are assumed to be determined by forces outside the model, e.g., government policy, and are therefore termed exogenous. All changes in the endogenous sectors of a input-output model are results of changes in the exogenous sectors.

A fundamental underlying relationship of input-output analysis is that the amount of a product (good or service) produced by a given sector in the economy is determined by the amount of that product that is purchased by all the users of the product. The users include other industrial sectors that use the product as inputs in the production of their own products (collectively referred to as intermediate demand) as well as sectors that use the product in its final form (collectively referred to as final demand). As an example, the amount of refined petroleum produced is determined by the intermediate demand (oil for plastic products, fuel used by farm tractors) and the final demand (heating fuel for consumers, gasoline for consumers’ cars).

The flow of products between sectors is measured in dollars and referred to as transactions between the various sectors. An important assumption of input-output analysis is that transactions (flow of products) between sectors is a fixed and constant proportion of the amount of product being produced. For example, the dollar amount of petroleum that the agricultural sector buys is a fixed proportion of the dollar amount of agricultural products produced.

Components of a Regional Input-Output Model

To use the input-output framework for regional analysis, it is necessary to establish an input-output model specific to the region. Three prescribed tables (or matrices) make up an input-output model: the transactions table, the direct requirements table and the total requirements table. Generally, the transactions table shows all the transactions between the various sectors in an economy. This provides a snapshot at a point in time of all the economic activity in the economy. These data can be used to produce a table of direct requirements which show how much of each input is required to produce one dollar of output. Using the direct requirements, a table of total (direct and indirect) requirements can be determined. These can be used to determine the impact on the entire economy of a change in any one sector or combination of sectors. The derivation and interpretation of these three tables are discussed below.

The Transaction Table

The transaction table is used to organize all the information about the regional economy; the other tables are derived from the transactions table. The transactions table shows the flow of all goods and services produced (or purchased) by sectors in the region (Table 1.1). The key to understanding this table is realizing that one firm’s purchases are another firm’s sales and that to produce more of one product requires the producti...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Preface
• About the Contributors
• 1 An Introduction to Regional Input-Output Analysis
• 2 Cautions in Using I-O Models
• 3 The Problem: Using Value-Added Information in Benefit/Cost Analysis
• 4 A Survey Approach to Developing an Input/Output Model
• 5 Nonsurvey Approach to I/O Modeling
• 6 Developing or Selecting a Regional Input-Output Model
• 7 Regional Economic Impact of the Conservation Reserve Program: An Application of Input-Output Analysis
• 8 Using Input-Output Analysis for Estimation of Distributional Impacts from Plant Openings and Closings
• 9 Impacts of Transfer Payments
• 10 Structural Analysis Using Input/Output Analysis: The Agriculture Sector and National and Regional Levels
• 11 The Role of Interindustry Linkages in an Industrial Targeting Model
• 12 Using Input-Output for Regional Planning
• 13 Policy Simulation Modeling
• 14 SAM Multipliers: Their Interpretation and Relationship to Input-Output Multipliers
• 15 Computable General Equilibrium Analysis at the Regional Level
• 16 The Dynamics of Input-Output Introduction