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2022 | OriginalPaper | Chapter

8. Negative IO Supply Shock Analyses: When Substitution Matters

Author : Jan Oosterhaven

Published in: Rethinking Input-Output Analysis

Publisher: Springer International Publishing

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Abstract

The inoperability IO model is one of the most used approaches to estimate the indirect impacts of negative supply shocks. It is a regular IO model formulated in relative changes that inadequately estimates only part of only the negative demand-side impacts of disasters, while it completely ignores the positive substitution effects on the supply side. Other IO approaches are also shown to be unsuited to this task. An information minimizing interindustry programming model is presented as an alternative. Its basic assumption is that economic actors, after a disaster, primarily try to restore their old pattern of economic transactions. By adding the usual fixed ratio assumptions of SU models, an indication is given of the heavy overestimation of the negative impacts of a supply shock when demand-driven IO models are used. Finally, to model the reconstruction phase of major disasters the dynamic IO model is added to this approach.

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previous chapter Supply-Driven IO Quantity Model and Its Dual, Price Model

next chapter Other IO Applications with Complications

On March 10, 2022, “inoperability input–output model” scored 1150 hits on Google Scholar.

Dietzenbacher and Miller (2015) show that it is far simpler to normalize the solution of (8.1) instead of normalizing its separate terms, as done by the IIM in (8.2). This results in: \({\mathbf{q}} = ({\hat{\mathbf{x}}}_{ - 1} )^{ - 1} ({\mathbf{I}} - {\mathbf{A}})^{ - 1} \Delta {\mathbf{y}}\).

Kujawski’s early (2006) critique of the IIM only related to this assumption of fixed technical coefficients and excess supply in all industries. It did not have an impact on the proliferation of the IIM.

Unfortunately, readily available IOTs and SUTs are usually too aggregated to calculate the necessary processing coefficients, with exception of agricultural industries based on a single major input (see Oosterhaven 1981, Chap. 8, for an application in case of a new polder). See Klaassen (1967) for the probably first use of processing coefficients in the so-called regional attraction model. See Klaassen (1974) for its interregional generalization. See Oosterhaven (1981, pp. 78–81 and 142–8) for a critical evaluation of the regional attraction model and, especially, of its claimed suitability to simultaneously model forward and backward linkages in interindustry analyses.

Note that the input coefficients in A in that case will not change, as they are dimensionless. The values of the exogenous variables, however, will need to be decrease proportionally, whereas the capital/output ratios will have to be increased proportionally, as the latter have a dimension, namely stock/flow.

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Title: Negative IO Supply Shock Analyses: When Substitution Matters
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_8

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