Input – Output Analysis

1. Input – Output Analysis MK Geografi Ekonomi Dept. Geografi FMIPA UI

2. Next …………

3. A simple model of trade Exports Internal Goods and Services Imports

4. The Economic Base Model ET = Total Employment EX = Export Employment EL = Local Employment ET = EX + EL (1) Define a = EL/ET Multiply by ET and substitute into (1): ET = EX + aET Solve for ET: ET = ( 1/1-a)EX

5. Example, Economic Base Model If a = .67 Then:( 1/1-.67) =( 1/.33) = 3 If EX = 500, then ET = 3 x 500 or 1500. If EX rises to 750, ET becomes 3 x 750 or 2250 and if EX falls back to 400, ET declines to 1200

6. Measurement of the Economic Base Multiplier Direct Surveys “Short-cut” Approaches: Assumption or Assignment Minimum Requirements Location Quotients Industry Specific Models: Input-output Regional econometric models

7. Example of Minimum Requirements (Thousands) If total employment was 100,000, then minimum requirements is 6%, or 6,000. If actual employment were 10,000, 4,000 would be assigned to exports. Repeat for all industries, sum local shares to obtain “a”

8. Example of Location QuotientApproach to Economic Base Industry Jobs LQ Export Local Agriculture 500 0.8 0 500 Mining 300 5.0 240 60 Manufacturing1000 2.0 500 500 Retail 1500 1.0 0 1500 Services 3000 1.2 500 2500 Total 6300 1240 5060 a = 5060/6300 = .803, so (1/1-.803) = 5.08

9. Size of Region and Size of Multiplier 1.0 .67 Wn.State Mult. = 3 World - Mult = Individual Sells all labor a = 0, multiplier = 1.0 Log Population

10. Regional Input-Output Models Final Demand Total Sales = Total Purchases Total Sales = Intermediate Sales + Final Sales Total Purchases = Intermediate Purchases + Value Added + Imports

11. Washington State Input-Output Model Handouts: Transactions Table Direct Requirements Matrix Direct & Indirect Requirements Matrix Direct, Indirect, & Induced Requirements Matrix Input-Output Notation

12. Impact Analysis Using I/O Models Direct, Indirect & Induced Requirements Matrix Final Demand = X Output Employment Impacts calculated from Output Impacts

13. Impact Analysis with I/O Models Key Inputs: Final Demand values for output, income, and jobs Key modeling requirements: I/o model relevant to the problem Results: usually reported for jobs, income, output, and taxes

14. Direct & Indirect Output Multipliers

15. Direct & Indirect Labor Income Per Dollar of Final Demand

16. Direct & Indirect Jobs Per $ Million Final Demand

17. Output Multipliers

18. Labor Income Multipliers Labor Income Per $ Final Demand

19. Employment Multipliers

20. Regional Models, continued Regional Econometric Models Interregional Input-output models Structural Change

21. Regional Econometric ModelsThe Washington Projection & Simulation Model Coefficient Change Consumption National Econometric Model Exports Output (I/O Relations) Imports State & Local Government Income Employment and Population Investment Productivity Rates Wage rates, tax rates, nonearnings income

22. WPSM Simulation of Change in Aerospace Exports

23. Multiregional Models Region B Region A Region D Region C

24. Multiregional Input-Output Model(intermediate & final transactionsincluding interregional value added payments) Feedback Loops

25. Simulation of Columbia Basin Irrigation Project Development Project Region Other Washington

26. Estimate of Employment Impacts from Multiregional Model

27. Gross Output Levels Required to Deliver 1961 Final Demand General Industries Materials Metalworking & Chemicals All Other 39.8% 37.6% 40.8% 18.5% 17.0% 14.7% 14.5% 16.0% 13.6% 28.8% 30.3% 28.5% Total Gross Output 686 677 689 1961 1939 1947

28. Employment Required to Deliver 1961 Final Demand with earlier Technologies 86 101 58 Millions of man-years Source: A. Carter, Structural Change in the American Economy

29. $ 1961 F.D. 617 523 662

30. U.S. Structural Change - Output, GNP, Intermediate Production Gross National Product 50.7% 51.2% 51.2% Intermediate Sales 48.8% 49.3% 48.8% Total Gross Output 688 270 435 1961 1939 1947

31. Input-Output Model Basics Disadur dari bahan kuliah: Tom Harris University of Nevada, Reno University Center for Economic Development MS 204 Reno, NV 89557-0105 and Gerald A. Doeksen Oklahoma State University Oklahoma Cooperative Extension Service 515 Ag Hall Stillwater, OK 74078

32. Examples of Interrelationships Between Sectors: • Sectors purchase from other sectors • Sectors sell to other sectors • Sectors sell outside the local economy • Sectors buy outside the local economy

33. Inputs $ Products $ Basic Industry $ $ Labor Inputs Goods & Services Households Services $ $ $ Overview of Community Economic System

34. Input-Output analysis creates a picture of a regional economy describing flows to and from industries and institutions

35. What Input-Output Analysis Can Do: • Input-Output Analysis is an accounting framework • Input-Output analysis can be used to predict changes in overall economic activity as a result of some change in the local economy

36. Provides a description of a local economy Predictive model to estimate impacts Uses of Input-Output Analysis

37. 3 Basic Components of Input-Output Models • Transactions Table • Direct Requirements Table • Total Requirements Table

38. Transactions Table • A transactions table shows the monetary flows of goods and services in a local economy • Represents monetary flows for a given time period, usually one year

39. Transactions Table Flows • Total outlays = Total output • Intermediate purchases are goods and services purchased and used in the local production process • Final demands are purchases for final consumption • Final payments are payments for factors or inputs outside intermediate production process

40. Purchasing Sectors ($ million) Agriculture Health Services Final Total Demands Output Agriculture 10 6 2 18 36 Health 4 4 3 26 37 Services 6 2 1 35 44 Final 16 25 38 0 79 Payments Total Input 36 37 44 79 196 Selling Sectors ($ million) Example Transactions Table

41. Predictive Use of Input-Output Analysis • Impacts are tracked throughout the economy • The multipliers are derived from regional economic accounts • Only local transactions are used to create the multiplier effect

42. Direct Requirements Table • Direct requirements are the purchases of resources (inputs) by a sector from all sectors to produce one dollar of output • Creates a production recipe

43. Direct Requirements Table Purchasing Sectors Agriculture Health Services Agriculture 0.278 0.162 0.045 Health 0.111 0.108 0.068 Services 0.167 0.054 0.023 Final Payments 0.444 0.676 0.864 Total 1.000 1.000 1.000 Selling Sectors

44. What are Multipliers? Multipliers measure total change throughout the economy from one unit change for a given sector.

45. Three Types of Multipliers are calculated from Model 1. Output 2. Employment 3. Income

46. Three levels of Multipliers Type I Multipliers Type II Multipliers Type III Multipliers

47. Type I Multipliers • Include direct or initial spending • Include indirect spending or businesses buying and selling to each other • The multiplier is direct plus indirect effect divided by direct effect

48. Type II Multipliers • Includes Type I Multiplier effects • Plus household spending based on the income earned from the direct and indirect effects – the induced effects

49. TYPE III MULTIPLIERS • Type III Multipliers are modified Type II multipliers. • Therefore, Type III Multipliers also include the direct, indirect, and induced effects. • Type III Multipliers adjust Type II Multipliers based on spending patterns amongst different income groups.

50. Type I Multipliers include:  Direct  Indirect (Business Spending) Type I Multipliers are derived from the Total Requirements Table In math, this is: X = (1-A)-1 Y