From Make-Use to Symmetric I-O Tables: An Assessment of Alternative Technology Assumptions

1. From Make-Use to Symmetric I-O Tables: An Assessment of Alternative Technology Assumptions Jiemin Guo, Ann M. Lawson, and Mark A. Planting Bureau of Economic Analysis U.S. Department of Commerce October, 2002

2. Overview • From Leontief model to UN make-use model • Two basic technology assumptions • BEA two-step mixed assumption approach • Assessments and evaluations

3. Background, Issues, and Past Research • Two Input-Output Models • Leontief Model (symmetric) • Make-Use Model (asymmetric) Two assumptions • Commodity Technology Assumption (CTA) • Industry Technology Assumption (ITA); Over view of past research

4. Treatment of Secondary Product in the U.S. Input-Output Accounts • U.S. compiles I-O accounts using make-use format since 1972 benchmark tables; • BEA uses a two-step “mixed” technology assumption to create symmetric tables; • Step one – “redefinition process”, under commodity technology assumption (CTA); • Step two – Transfer remaining secondary products mechanically, using ITA.

5. Data • For 1992 US benchmark I-O tables, there are two data sets • Alternative make-use tables (Before redefinitions) • Traditional make-use tables (after redefinitions)

6. Total Output, Primary Products, and Secondary Products Secondary products consist 7% of total output before redefinition; About 1/3 of secondary products were moved to their primary products, based on CTA; The remaining 2/3 secondary products are treated as homogeneous within producing industries, therefore will be transferring to there respective producing industries mechanically, using ITA.

7. Tests to Evaluate Procedures Alternative procedures Table 4.–Alternative Procedures Examined for Redefining Secondary Products

8. Tests to Evaluate Procedures (Cont.) The following tests were performed using these procedures: • Comparison of the differences in total output multipliers resulting from procedures IA and IT; • Comparison of the differences in total output multipliers resulting from procedures CA and CT; • Comparison of the numbers and sizes of negative elements resulting from CT with to CA in the total requirements matrices are compared.

9. K Index • Ki describes commodity i in terms of its dominance in its primary producing industry and in other industries. It is expressed as Ki = qi/gi • Measuring the Complexity of a product in terms of it’s primary and secondary product composition

10. Empirical Results Differences in Total Output Multipliers Table 5.–Differences in Total Output Multipliers Resulting from Procedure IT (BEA Method) vs. Procedure IA and from Procedure CT vs. Procedure CA

11. Empirical Results (cont.) • Changes in Negative Cells Table 7.--Numbers and Sums of Values of Negative Coefficients in the Total Requirements Matrices Resulting from Procedure CA and Procedure CT

12. Empirical Results (cont.) • K Values and Sources of Negatives from CTA • The top negative values from CTA are linked to high or low K values • A concentration in the input sectors (columns) with the largest negative coefficients was found, such as Radio and TV broadcasting and Newspapers, which have the lowest K values among over 400 products • The sectors with larger than 1.0 K values appeared most frequently in the rows (supplying).

13. Conclusions • Conclusions • For 1992, the U.S. Benchmark I-O Accounts show that secondary products represented only about 7 percent of total gross output ($739 billion out of total $10,054 billion); • The choice of method does not greatly affect the total multipliers for economic-impact analyses. • For some commodities and industries, the choice between BEA’s two-step method and a one-step method does make a large difference.

14. Conclusions (cont.) • Disagreement about what causes negative values to occur and what methods can be used to produce “ideal” results without negative values. • Test results suggest that hand redefinitions of nonhomogeneous secondary products, using the CTA, can reduce the frequency of negative values, compared with using the CTA to transfer all secondary products mechanically. • Most large negative values in the total requirements matrices, resulting from the CTA, are related to secondary products that represent either a large proportion of an industry’s total output or of a commodity’s total output.

15. Recommendations for Future Study • Has the BEA identified those secondary products that require hand adjustments, using the CTA, from all other secondary products that require only a mechanical transfer, is appropriate, using the ITA? If the hand adjustments, using the CTA, results in only a 10 percent reduction in the frequency of negative values, is this an indicator that additional secondary products require hand adjustments? • If a hybrid solution is optimal for handling secondary products, is there an effective test to distinguish between those secondary products that require hand adjustments, using the CTA, and all other secondary products for which the mechanical transfer, using the ITA, is more appropriate? • Are large negative values resulting from the CTA indicators that classification and/or measure errors have occurred in the original data—that is, that the source data should be re-examined?