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2022 | OriginalPaper | Chapter

5. From Basic IO and SU Models to Demo-economic Models

Author : Jan Oosterhaven

Published in: Rethinking Input-Output Analysis

Publisher: Springer International Publishing

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A social accounting matrix (SAM) is shown to represent the ideal data set to endogenize household consumption, as it contains a full description of the generation, redistribution and spending of income. The Type II multipliers and Type II spillovers of an interregional SAM model are both larger than those of the standard, Type I model, whereas exogenous final demand is smaller. They are shown to represent an upper limit for the true multipliers. Type III multipliers are smaller, as income growth of existing jobs needs to be multiplied with smaller marginal instead of average consumption/output ratios. Type IV multipliers are even smaller, as they include the feedback of employment growth on unemployment benefits. Endogenizing remaining final demand leads to ever larger, less plausible multipliers.

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previous chapter From Regional IO Tables to Interregional SU Models

next chapter Cost-Push IO Price Models and Interaction with Quantities

See Miyazawa and Masegi (1963) for the original idea, and Sonis and Hewings (1999) for an overview of Miyazawa-type IO model extensions. Pyatt (2001) shows that Miyazawa-type multipliers can be viewed as special cases of interregional SAM multipliers. The core difference is that Miyazawa-type multipliers relate the generation of income by production factor, industry and region directly to the spending of that income on products produced by industry and region, whereas SAM multipliers offer additional detail and more understanding in that they add the spatial and governmental redistribution of income in-between its generation and its spending.

The 20% is derived from Miller and Blair (2009), who report a ratio of Type III to Type II multipliers of 0.87–0.91 on p.255. Their ratio, however, includes the direct effect, which we exclude, as no model is needed for its estimation. In the older IO literature, there is quite some discussion about fixed multiplicative relations between Type I, II and III normalized income multipliers (see Miller and Blair 2009, ch. 6). If one defines total endogenous income per regional industry to be equal to that part of it that is paid to regional households, then a fixed relation exists (see Miller and Blair 2009, for proof and empirical ratios). In the old days, this presented an important computational advantage, but nowadays this advantage is outweighed by the disadvantage of having to use a definition of income that only covers the labour part of value added.

With twelve industries, nine occupations, males and females, in case of Queensland, Oosterhaven and Dewhurst (1990) report significant differences in re-employment and immigration probabilities when the vacancy-chains of people moving between jobs are ignored.

See van Dijk and Oosterhaven (1986) and Oosterhaven and Dewhurst (1990) for single-region applications of the above approach, and Oosterhaven et al. (2019) for an overview of extended IO models, especially for the USA.

Parts of this Section were written earlier for Oosterhaven (et al. 2019). I thank my transport economics colleague Jaap B. Polak for providing the data on the close-down of the Fokker aircraft company.

Note that de Mesnard (2006) takes offense at the use of the word multiplier in this case. See Oosterhaven (2007) for a reply and Dietzenbacher (2005) for an independent evaluation. The conclusion of this debate is that the net multiplier is best viewed as a net key sector measure that takes into account the two-sided nature of an industry’s dependence on the rest of the economy versus the rest of the economy’s dependence on that industry. See for a further discussion Sect. 9.1.

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Title: From Basic IO and SU Models to Demo-economic Models
Author: Jan Oosterhaven
Publisher: Springer International Publishing
Book: Rethinking Input-Output Analysis
Print ISBN: 978-3-031-05086-2

Electronic ISBN: 978-3-031-05087-9

Copyright Year: 2022
DOI: https://doi.org/10.1007/978-3-031-05087-9_5

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