In economics, an input–output model is a quantitative economic technique that represents the interdependencies between different branches of a national economy or different regional economies. Wassily Leontief (1906–1999) is credited with developing this type of analysis and earned the Nobel Prize in Economics for his development of this model.
The International Input-Output Association is dedicated to advancing knowledge in the field of input–output study, which includes "improvements in basic data, theoretical insights and modelling, and applications, both traditional and novel, of input-output techniques."
- 1 Origins
- 2 The Input-output Model
- 3 Input-output and socialist planning
- 4 Usefulness
- 5 Basic derivation
- 6 Measuring input–output tables
- 7 Input–output analysis versus consistency analysis
- 8 See also
- 9 References
- 10 Bibliography
- 11 External links
Francois Quesnay had developed a cruder version of this technique called Tableau économique, and Léon Walras's work Elements of Pure Economics on general equilibrium theory also was a forerunner and generalization of Leontief's seminal concept.
Alexander Bogdanov has been credited with originating the concept in a report delivered to the All Russia Conference on the Scientific Organisation of Labour and Production Processes, in January 1921. This approach was also developed by L. N. Kritsman and T. F. Remington has argued that their work provided a link between Quesnay's tableau économique and the subsequent contributions by Vladimir Groman and Vladimir Bazarov to Gosplan's method of material balance planning.
Wassily Leontief's work in the input-output model was influenced by the works of the classical economists Karl Marx and Jean Charles Léonard de Sismondi. Karl Marx's economics provided an early outline involving a set of tables where the economy consisted of two interlinked departments.
Leontief's major contribution was to simplify Walras's formulation to make the computation feasible and empirically useful. Input–output analysis assumes that input proportions between different economic sectors are fixed and do not change significantly in the short-term. As a result, results calculated by this method should be regarded only as approximations.
The Input-output Model
An understanding of the economy as consisting of linked sectors goes back to the French economist François Quesnay, and was fully developed by Léon Walras in 1874. However, Wassily Leontief was the first to use a matrix representation of a national (or regional) economy. His model depicts inter-industry relationships within an economy, showing how output from one industrial sector may become an input to another industrial sector. In the inter-industry matrix, column entries typically represent inputs to an industrial sector, while row entries represent outputs from a given sector. This format therefore shows how dependent each sector is on every other sector, both as a customer of outputs from other sectors and as a supplier of inputs. Each column of the input–output matrix shows the monetary value of inputs to each sector and each row represents the value of each sector's outputs.
|Part of a series on|
|Economic Activities||1||2||…||…||Z||Exports||Final Demand||Total Outputs|
A more satisfactory way to proceed would be to tie regions together at the industry level. That is, we could identify both intra-region inter-industry transactions and inter-region inter-industry transactions. The problem here is that the table grows quickly.
input–output is conceptually simple. Its extension to a model of equilibrium in the national economy is also relatively simple and attractive but requires great skill and high-quality data. One who wishes to do work with input–output systems must deal skillfully with industry classification, data estimation, and inverting very large, ill-conditioned matrices. Moreover, changes in relative prices are not readily handled by this modeling approach alone. Of course, input–output accounts are part and parcel to a more flexible form of modeling, Computable general equilibrium models.
Two additional difficulties are of interest in transportation work. There is the question of substituting one input for another, and there is the question about the stability of coefficients as production increases or decreases. These are intertwined questions. They have to do with the nature of regional production functions.
Measuring input–output tables
The mathematics of input–output economics is straightforward, but the data requirements are enormous because the expenditures and revenues of each branch of economic activity have to be represented. As a result, not all countries collect the required data and data quality varies, even though a set of standards for the data's collection has been set out by the United Nations through its System of National Accounts (SNA): the most recent standard is the 2008 SNA. Because the data collection and preparation process for the input–output accounts is necessarily labor and computer intensive, input–output tables are often published long after the year in which the data were collected—typically as much as 5–7 years after. Moreover, the economic "snapshot" that the benchmark version of the tables provides of the economy's cross-section is typically taken only once every few years, at best.
However, many developed countries estimate input–output accounts annually and with much greater recency. This is because while most uses of the input–output analysis focus on the matrix set of interindustry exchanges, the actual focus of the analysis from the perspective of most national statistical agencies is the benchmarking of gross domestic product. input–output tables therefore are an instrumental part of national accounts. As suggested above, the core input–output table reports only intermediate goods and services that are exchanged among industries. But an array of row vectors, typically aligned below this matrix, record non-industrial inputs by industry like payments for labor; indirect business taxes; dividends, interest, and rents; capital consumption allowances (depreciation); other property-type income (like profits); and purchases from foreign suppliers (imports). At a national level, although excluding the imports, when summed this is called "gross product originating" or "gross domestic product by industry." Another array of column vectors is called "final demand" or "gross product product consumed." This displays columns of spending by households, governments, changes in industry stocks, and industries on investment, as well as net exports. (See also Gross domestic product.) In any case, by employing the results of an economic census which asks for the sales, payrolls, and material/equipment/service input of each establishment, statistical agencies back into estimates of industry-level profits and investments using the input–output matrix as a sort of double-accounting framework.
Input–output analysis versus consistency analysis
Despite the clear ability of the input-output model to depict and analyze the dependence of one industry or sector on another, Leontief and others never managed to introduce the full spectrum of dependency relations in a market economy. In 2003, Mohammad Gani , a pupil of Leontief, introduced consistency analysis in his book 'Foundations of Economic Science' (ISBN 984320655X), which formally looks exactly like the input–output table but explores the dependency relations in terms of payments and intermediation relations. Consistency analysis explores the consistency of plans of buyers and sellers by decomposing the input–output table into four matrices, each for a different kind of means of payment. It integrates micro and macroeconomics in one model and deals with money in an ideology-free manner. It deals with the flow of funds via the movement of goods.
- Computable general equilibrium
- Economic base analysis
- Economic planning
- Gross Output
- Industrial organization
- IPO Model
- Material balance planning
- Net output
- Socialist economics
- Shift-share analysis
- Environmentally extended input-output analysis
- Thijs Ten Raa, Input–output economics: theory and applications: featuring Asian economies, World Scientific, 2009
- Belykh, A. A. (July 1989). "A Note on the Origins of Input-Output Analysis and the Contribution of the Early Soviet Economists: Chayanov, Bogdanov and Kritsman". Soviet Studies 41 (3): 426–429. doi:10.1080/09668138908411823.
- Clark, D. L. (1984). "Planning and the Real Origins of Input-Output Analysis". Journal of Contemporary Asia 14 (4): 408–429. doi:10.1080/00472338485390301.
- Walras, L. (1874). Éléments d'économie politique pure, ou théorie de la richesse sociale [Elements of Pure Economics, or The Theory of Social Wealth].
- Zera. "Quantity-Directed Socialism". EconomicTheories.Org. Retrieved 21 December 2013.
- Towards A New Socialism, 1993, by Paul cockshott and Allin Cottrell. Coronet Books Inc. 978-0851245454. "Planning in the USSR", (P.79)
- Nikaido, H. (1970). Introduction to Sets and Mappings in Modern Economics. New York: Elsevier. pp. 13–19. ISBN 0-444-10038-5.
- About SNA, UN
- Dietzenbacher, Erik and Michael L. Lahr, eds. Wassilly Leontief and Input-Output Economics. Cambridge University Press, 2004.
- Isard, Walter et al. Methods of Regional Analysis: An Introduction to Regional Science. MIT Press 1960.
- Isard, Walter and Thomas W. Langford. Regional Input-Output Study: Recollections, Reflections, and Diverse Notes on the Philadelphia Experience. The MIT Press. 1971.
- Lahr, Michael L. and Erik Dietzenbacher, eds. Input-Output Analysis: Frontiers and Extensions. Palgrave, 2001.
- Leontief, Wassily W. Input-Output Economics. 2nd ed., New York: Oxford University Press, 1986.
- Miller, Ronald E. and Peter D. Blair. Input-Output Analysis: Foundations and Extensions. Prentice Hall, 1985.
- Miller, Ronald E. and Peter D. Blair. Input-Output Analysis: Foundations and Extensions, 2nd edition. Cambridge University Press, 2009.
- Miller, Ronald E., Karen R. Polenske, and Adam Z. Rose, eds. Frontiers of Input-Output Analysis. N.Y.: Oxford UP, 1989.[HB142 F76 1989/ Suzz]
- Miernyk, William H. The Elements of Input-Output Anaysis, 1965..
- Polenske, Karen. Advances in Input-Output Analysis. 1976.
- Pokrovskii, Vladimir N. Econodynamics. The Theory of Social Production, Springer, Dordrecht, Heidelberg et cetera, 2011.
- ten Raa, Thijs. The Economics of Input-Output Analysis. Cambridge University Press, 2005.
- US Department of Commerce, Bureau of Economic Analysis . Regional multipliers: A user handbook for regional input-output modeling system (RIMS II). Third edition. Washington, D.C.: U.S. Government Printing Office. 1997.
- International Input-Output Association
- Input-Output Analysis and Related Methods, San José State University
- Doing Business project input/output tables for reforms
- Energy Economics. Input-Output Analysis: Lecture – 6 and Lecture 7 – two introductory videos on Input-Output methodology with a focus on energy economics from IIT Kharagpur.
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