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2022 | Book

Introduction: Importance Interindustry Relations and Overview Read chapter Read first chapter

Rethinking Input-Output Analysis

A Spatial Perspective

Author: Jan Oosterhaven

Publisher: Springer International Publishing

Book Series : Advances in Spatial Science

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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About this book

This textbook helps students to understand the social, economic, and environmental importance of the mutual relations between industries in the same and in different regions and nations and demonstrates how to model these relations using regional, interregional, and international input-output (IO) models. It enables readers to extend these basic IO models with endogenous household expenditures, to employ supply-use tables (SUTs) that explicitly distinguish the products used and sold by industry, and to use social accounting matrices (SAMs) that detail the generation, redistribution and spending of income. In addition to the standard demand-driven IO quantity model and its accompanying cost-push IO price model, the book also discusses the economic assumptions and usefulness of the supply-driven IO quantity model and its accompanying revenue-pull IO price model. The final chapters highlight three main applications of the IO model: (1) economic impact analysis of negative supply shocks as caused by, for example, natural disasters, (2) linkages, key sector, and cluster analysis, (3) structural decomposition analysis, especially of regional, interregional, and international growth, and demonstrate the strengths and weaknesses of these IO applications.

Written for graduate students of regional and spatial science as well as for economists and planners, this book provides a better understanding of the foundations, the power, the applicability and the limitations of input-output analysis. The second, completely revised edition expands on updating IO tables, modelling the disaster reconstruction phase, and includes an appendix on the necessary matrix algebra.

Table of Contents

Frontmatter
Chapter 1. Introduction: Importance Interindustry Relations and Overview
Abstract
This introductory chapter outlines the type of research questions that you can answer with regional, national, interregional and international input–output analysis and gives an overview of the contents of this book.
Jan Oosterhaven
Chapter 2. Basic, Demand-Driven IO Quantity Models
Abstract
This chapter introduces the single-region, the interregional and the multi-regional input–output (IO) table and the differences between the IO models based on these three sets of data. The crucial intermediate input coefficients are shown to represent the product of a technical coefficient and an intra-regional self-sufficiency ratio in case of the single-region IO model, plus interregional import coefficients in case of both types of multi-region models. Besides, it is shown that it is better to work with the dimensionless normalized income, employment, emissions and other impact multipliers than with the ordinary multipliers of exogenous final demand. Finally, the nature of interregional spillover and feedback effects is explained, and why both are underestimated by the single-region model.
Jan Oosterhaven
Chapter 3. Updating Different Types of IO Tables
Abstract
The iterative scaling and rescaling of the rows and columns of an old IOT until they equal the new row and column totals, known as RAS, outperforms alternative techniques for updating old IOTs. Still, the errors of this information gain minimizing technique remain large, which is why adding survey data for the target year is required. In case of updating bi-regional IOTs, adding the known values of new national IO cells, while using the multi-proportional scaling of MR-RAS, considerably improves the accuracy of the updates. When negative cells are present, RAS and MR-RAS need to be replaced by generalized RAS and MR-GRAS. Finally, it is shown how time series of old IOTs may be used in CRAS to improve the estimates of the cells in RAS or GRAS.
Jan Oosterhaven
Chapter 4. From Regional IO Tables to Interregional SU Models
Abstract
An overview of non-survey construction methods for regional input–output tables (RIOTs) reveals a systematic overestimation of regional multipliers. The Cell-corrected RAS method uses the nowadays abundance of easily available survey-based RIOTs to improve the cell estimates of unknown RIOTs. Moreover, semi-survey bi-regional IOTs may be constructed with a double-entry construction method that requires minimal additional survey data about the spatial destination of total sales by regional industry. Rectangular supply–use tables (SUTs) have become prevalent over square IOTs. The possible set-ups of interregional SUTs are explained along with the models that may be based on them. Finally, large differences are shown to exist between the top-down interregional and the bottom-up international construction of SUTs.
Jan Oosterhaven
Chapter 5. From Basic IO and SU Models to Demo-economic Models
Abstract
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.
Jan Oosterhaven
Chapter 6. Cost-Push IO Price Models and Interaction with Quantities
Abstract
In the Type I single-region, cost-push IO price model, under full competition, exogenous primary input price changes are fully passed on to all intermediate users that fully pass them on further, resulting in endogenous total and final output price changes. In the Type II interregional price model, additionally, consumption price changes are fully passed on in wage rates, while domestic export price changes are fully passed on to importing regions. Finally, it is shown how the IO price model may be combined with the IO quantity model by adding demand and supply price elasticities and how supply and demand shifts are passed on from market to market, resulting in lower, more realistic price and quantity multipliers.
Jan Oosterhaven
Chapter 7. Supply-Driven IO Quantity Model and Its Dual, Price Model
Abstract
The supply-driven IO quantity model is shown to be the mirror image of the standard IO model. In this Ghosh model, any change in the exogenous supply of primary inputs is passed on forwardly to purchasers that pass it on further with fixed intermediate and fixed final output coefficients. The Ghosh model assumes a single homogeneous input, which means that factories may work without labour. The Type II supply-driven model, additionally, has a supply-driven consumption function, which allows kitchen appliances to run without electricity. The dual of the Ghosh quantity model, the revenue-pull IO price model, simulates the backward passing on, under full competition, of any final output price change to the suppliers of intermediate inputs who pass them on further, to end up in changes in the endogenous prices of the primary inputs. Finally, the functioning of markets in all four basic IO models is compared, which shows that the price and quantity impacts in all four models are overestimated.
Jan Oosterhaven
Chapter 8. Negative IO Supply Shock Analyses: When Substitution Matters
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.
Jan Oosterhaven
Chapter 9. Other IO Applications with Complications
Abstract
This chapter deals with two other applications of IO analysis that regularly appear in the literature without consideration of their limitations. Regional and interregional, forward and backward linkage analysis, also known as key sector analysis, only looks at the benefits while ignoring the policy cost of stimulating the sector chosen. Structural decomposition analysis (SDA) of national and interregional economic growth only looks at demand-side explanations of growth, while ignoring the supply side. Hence, in both types of studies, policy-makers are shown only half of the truth.
Jan Oosterhaven
Chapter 10. The Future: What to Forget, to Maintain and to Extend
Abstract
The four basic IO models are essentially unsuited as prediction models. Demand-driven IO models, however, represent a perfect descriptive device to measure the direct and indirect value added or natural resources embodied per unit consumption or exports, etc., whereas IOTs, or better SUTs, or even better SAMs, have proven to provide the indispensable data for ever more sophisticated, econometrically extended IO models and interindustry CGE models, both for single and for multiple regions and nations.
Jan Oosterhaven
11. Correction to: Rethinking Input-Output Analysis
Jan Oosterhaven
Backmatter
Metadata
Title
Rethinking Input-Output Analysis
Author
Jan Oosterhaven
Copyright Year
2022
Electronic ISBN
978-3-031-05087-9
Print ISBN
978-3-031-05086-2
DOI
https://doi.org/10.1007/978-3-031-05087-9