input – output analysis

Input Output AnalysisMK Geografi EkonomiDept. Geografi FMIPA UI

A simple model of tradeExportsImportsInternal Goodsand Services

The Economic Base ModelET = Total EmploymentEX = Export EmploymentEL = Local Employment

ET = EX + EL (1)

Define a = EL/ETMultiply by ET and substitute into (1): ET = EX + aETSolve for ET:

ET = ( 1/1-a)EX

Example, Economic Base ModelIf 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

Measurement of the Economic Base MultiplierDirect SurveysShort-cut Approaches:Assumption or AssignmentMinimum RequirementsLocation QuotientsIndustry Specific Models:Input-outputRegional econometric models

Example of Minimum RequirementsIf total employment was 100,000, then minimum requirementsis 6%, or 6,000. If actual employment were 10,000, 4,000 wouldbe assigned to exports.Repeat for all industries, sum local shares to obtain a(Thousands)

Chart3

0.01192045020.0307840483

0.04644289350.0482464496

0.06131090050.0557670965

0.07617890750.0632877434

0.09583334370.0732294979

0.11070135070.0807501448

mfg85

mfg95

Total Employment

Minimum Requirements Manufacturing

Sheet1

19851995

agser85popagser95Logpop

0.0006016424100.00157017842.302585093

0.0011821667500.0022726983.9120230054populationagser85agser95

0.00143218491000.00257525684.60517018610.00060164240.0015701784

0.00168220312000.00287781555.2983173665100.00060164240.0015701784

0.00201270915000.00327777646.2146080984500.00118216670.002272698

0.002262727310000.00358033526.9077552791000.00143218490.0025752568

2000.00168220310.0028778155

agser85agser95pop5000.00201270910.0032777764

0.00060164240.00157017841010000.00226272730.0035803352

0.00118216670.00227269850

0.00143218490.0025752568100

0.00168220310.0028778155200

0.00201270910.0032777764500

0.00226272730.00358033521000

Populationmining85mining95

100.00001594380.0000646092

500.00018638320.0001618353

1000.00025978750.0002037083

2000.00033319180.0002455814

5000.0004302270.0003009345

10000.00050363130.0003428075

Populationconstr85constr95

100.01852498790.01940569

500.02349815110.0251272418

1000.02563997590.02759138

2000.02778180070.0300555182

5000.0306131390.0333129318

10000.03275496380.03577707

Populationmfg85mfg95

100.01192045020.0307840483

500.04644289350.0482464496

1000.06131090050.0557670965

2000.07617890750.0632877434

5000.09583334370.0732294979

10000.11070135070.0807501448

tcu85tcu95

0.01579263110.0144542028

0.0244658920.0229230651

0.02820126210.0265704055

0.03193663230.030217746

0.0368745230.0350392678

0.04060989320.0386866083

whole85whole95

0.00650729040.0110176949

0.0228752740.023403929

0.02992458080.0287383898

0.03697388760.0340728505

0.04629256440.0411246239

0.05334187120.0464590846

retail85retail95

0.15105701360.1504592879

0.15878553450.1591679565

0.16211402720.1629185759

0.165442520.1666691953

0.16984254810.1716272444

0.17317104080.1753778638

fire85fire95

0.01442355150.0131232989

0.02721858290.0246404366

0.0327291030.0296005979

0.03823962310.0345607591

0.04552413440.0411177356

0.05103465450.0460778968

bizser85bizser95

0.023153168-0.0160952026

0.04193530850.0100517257

0.05002433610.0213125948

0.05811336370.0325734639

0.06880647650.0474595232

0.07689550410.0587203923

legal85legal95

0.00090664840.0010830418

0.00237493860.00259704

0.00300729680.0032490836

0.00363965490.0039011271

0.0044755870.0047630818

0.00510794510.0054151254

Member85Member95

0.00641748990.0085341685

0.00859023110.0104445713

0.00952597980.011267337

0.01046172840.0120901027

0.01169872090.0131777398

0.01263446960.0140005055

health85health95

0.01928164610.0642552888

0.03107721660.0679215884

0.03615729230.0695005777

0.0412373680.071079567

0.04795286280.0731668772

0.05303293840.0747458665

educ85educ95

-0.0030768845-0.0012538486

0.00066827750.0017042983

0.0022812310.0029783028

0.00389418450.0042523073

0.0060263930.0059364497

0.00763934650.0072104542

social85social95

0.00351392340.007741353

0.0058942820.0096420992

0.00691944670.010460706

0.00794461140.0112793128

0.00929980540.0123614522

0.01032497010.013180059

othserv85othserv95

0.01601815160.018699433

0.02489098280.0283077773

0.02871230320.032445866

0.03253362360.0365839547

0.03758513440.0420542103

0.04140645490.046192299

unclass85unclass95

0.00951313890.0002603605

0.00903304350.0003309987

0.00882627770.0003614209

0.00861951190.0003918431

0.00834618240.0004320591

0.00813941660.0004624814

totalmin85totalmin95

0.29457079270.3241036047

0.42911915840.4369437109

0.48706598550.4855412995

0.54501281250.534138888

0.62161435120.5983814057

0.67956117820.6469789942

Sheet1

agser85

agser95

Sheet2

tcu85

tcu95

Sheet3

0.00650729040.0110176949

0.0228752740.023403929

0.02992458080.0287383898

0.03697388760.0340728505

0.04629256440.0411246239

0.05334187120.0464590846

whole85

whole95

0.15105701360.1504592879

0.15878553450.1591679565

0.16211402720.1629185759

0.165442520.1666691953

0.16984254810.1716272444

0.17317104080.1753778638

retail85

retail95

0.01442355150.0131232989

0.02721858290.0246404366

0.0327291030.0296005979

0.03823962310.0345607591

0.04552413440.0411177356

0.05103465450.0460778968

fire85

fire95

0.023153168-0.0160952026

0.04193530850.0100517257

0.05002433610.0213125948

0.05811336370.0325734639

0.06880647650.0474595232

0.07689550410.0587203923

bizser85

bizser95

0.00090664840.0010830418

0.00237493860.00259704

0.00300729680.0032490836

0.00363965490.0039011271

0.0044755870.0047630818

0.00510794510.0054151254

legal85

legal95

0.00641748990.0085341685

0.00859023110.0104445713

0.00952597980.011267337

0.01046172840.0120901027

0.01169872090.0131777398

0.01263446960.0140005055

Member85

Member95

0.01928164610.0642552888

0.03107721660.0679215884

0.03615729230.0695005777

0.0412373680.071079567

0.04795286280.0731668772

0.05303293840.0747458665

health85

health95

-0.0030768845-0.0012538486

0.00066827750.0017042983

0.0022812310.0029783028

0.00389418450.0042523073

0.0060263930.0059364497

0.00763934650.0072104542

educ85

educ95

0.00351392340.007741353

0.0058942820.0096420992

0.00691944670.010460706

0.00794461140.0112793128

0.00929980540.0123614522

0.01032497010.013180059

social85

social95

00

00

00

00

00

00

othserv85

othserv95

00

00

00

00

00

00

unclass85

unclass95

00

00

00

00

00

00

totalmin85

totalmin95

agser85

agser95

Total Employment

Estimated Local Share

Agricultural Services, Forestry, Fishing

mining85

mining95

Total Employment

Minimum Requirements Mining

constr85

constr95

Total Employment

Minimum Requirements Construction

mfg85

mfg95

Total Employment

Minimum Requirements Manufacturing

Example of Location QuotientApproach to Economic BaseIndustryJobsLQExportLocalAgriculture5000.80500Mining3005.024060Manufacturing10002.0500500Retail15001.001500Services30001.25002500

Total630012405060

a = 5060/6300 = .803, so (1/1-.803) = 5.08

Size of Region and Size of MultiplierLog Population1.0World - Mult = .67Wn.StateMult. = 3IndividualSells all labora = 0, multiplier = 1.0

Regional Input-Output ModelsTotal Sales = Total PurchasesTotal Sales = Intermediate Sales + Final SalesTotal Purchases = Intermediate Purchases + Value Added+ ImportsFinal Demand

Industry 1

Industry 2

Consump-tion

Invest-ment

Govt.

Exports

Total Sales

Industry 1

Industry 2

Labor Income

Other Value Added

Imports

Total Purchases

Washington State Input-Output ModelHandouts: Transactions TableDirect Requirements MatrixDirect & Indirect Requirements MatrixDirect, Indirect, & Induced RequirementsMatrixInput-Output Notation

Impact Analysis Using I/O Models=OutputDirect, Indirect& InducedRequirementsMatrixXFinal DemandEmployment Impacts calculated from Output Impacts

Impact Analysis with I/O ModelsKey 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

Direct & Indirect Output Multipliers

Direct & Indirect Labor Income Per Dollar of Final Demand

Direct & Indirect Jobs Per $ Million Final Demand

Output Multipliers

Labor Income MultipliersLabor IncomePer $ Final Demand

Employment Multipliers

Regional Models, continued Regional Econometric Models Interregional Input-output models

Structural Change

Regional Econometric ModelsThe Washington Projection & Simulation ModelIncomeEmploymentand PopulationConsumptionExportsNationalEconometricModelState & LocalGovernmentInvestmentOutput(I/O Relations)ImportsCoefficientChangeProductivity RatesWage rates, tax rates, nonearnings income

WPSM Simulation of Change in Aerospace Exports

Chart2

00000000

10011556218635993

100121631527264125

100121653387462139

1001256915277966151

1001226916227864150

1001166516167359145

1001116217117055137

100107591786652128

100103561676348120

100103531566145113

Aerospace Exports

Value-added

Consumption

State & Local Expenditures

Fixed Investment

Disposable Income

Persons Employed (hundreds)

Population (hundreds)

Sheet1

19751976197719781979198019811982198319841985

Aerospace Exports0100100100100100100100100100100

Value-added0115121121125122116111107103103

Consumption056636569696562595653

State & Local Expenditures021315161617171615

Fixed Investment018523827221611876

Disposable Income063727479787370666361

Persons Employed (hundreds)059646266645955524845

Population (hundreds)093125139151150145137128120113

Sheet1

Aerospace Exports

Value-added

Consumption


Fixed Investment

Disposable Income



Sheet2

Sheet3

Multiregional ModelsRegion ARegion BRegion CRegion D

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

A(A

A(B

A(C

A(D

B(A

B(B

B(C

B(D

C(A

C(B

C(C

C(D

D(A

D(B

D(C

D(D

Simulation of Columbia Basin Irrigation Project DevelopmentProject RegionOther Washington

Estimate of Employment Impacts from Multiregional Model

Chart5

0018710

0018710

10552948

102464240412

25511586231016

36816519301435

17950199110451806

3449913588901498

53215413314121421

75122017574701921

89926317663931994

111432719563352276

138641524313642833

154645524593262918

190354528772783529

201158430052973637

221865629961533696

22286562888783623

Local Agriculture

Local Food Products

Other Local Jobs

Project Construction

Other Washington Jobs

Project Year

Jobs

Sheet1

19751976197719781979198019811982198319841985

Aerospace Exports0100100100100100100100100100100

Value-added0115121121125122116111107103103

Consumption056636569696562595653

State & Local Expenditures021315161617171615

Fixed Investment018523827221611876

Disposable Income063727479787370666361

Persons Employed (hundreds)059646266645955524845

Population (hundreds)093125139151150145137128120113

IndustryYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12Year 13Year 14Year 15Year 16Year 17Year 18

Local Agriculture0011025361793445327518991114138615461903201122182228

Local Food Products0002585099154220263327415455545584656656

Other Local Jobs18185546411581651199113581331175717661956243124592877300529962888

Project Construction7729240623930104589041247039333536432627829715378

Other Washington Jobs10104841210161435180614981421192119942276283329183529363736963623

total local jobs8571618112625326526912429319833213732459647865603589760235850

Sheet1

Aerospace Exports

Value-added

Consumption


Fixed Investment

Disposable Income



Sheet2

Local Agriculture

Local Food Products

Other Local Jobs

Project Construction

Other Washington Jobs

Project Year

Jobs

Sheet3

MBD00088B24.unknown

Gross Output Levels Required to Deliver 1961 Final Demand19391947196137.6%GeneralIndustries

MaterialsMetalworking& Chemicals

All Other30.3%39.8%28.8%677Total GrossOutput68968640.8%28.5%18.5%13.6%17.0%14.7%14.5%16.0%

Employment Required to Deliver 1961 Final Demand with earlier Technologies1018658Millions of man-yearsSource: A. Carter, Structural Change in the American Economy

Chart1

45.223.1141.116.1

46.923.19.11.519.4

53.414.99.81.420.3

General Industries

Materials

Metalworking

Chemicals

All Other

Sheet1

193919471961

General Industries45.246.953.4

Materials23.123.114.9

Metalworking149.19.8

Chemicals1.11.51.4

All Other16.119.420.3

Sheet1

General Industries

Materials

Metalworking

Chemicals

All Other

Sheet2

Sheet3

662617523$ 1961 F.D.

Chart2

7012.73.6112.6

68.912.35.31.711.9

65.413.65.32.713.1

General Industries

Materials

Metalworking

Chemicals

All Other

Capital Stock Required to Deliver 1961 Final Demand

Sheet1

193919471961

General Industries45.246.953.4


Metalworking149.19.8

Chemicals1.11.51.4

All Other16.119.420.3

Industry193919471958

General Industries7068.965.4


Metalworking3.65.35.3

Chemicals11.72.7

All Other12.611.913.1

Sheet1

General Industries

Materials

Metalworking

Chemicals

All Other

Sheet2

General Industries

Materials

Metalworking

Chemicals

All Other

Capital Stock Required to Deliver 1961 Final Demand

Sheet3

U.S. Structural Change - Output, GNP, Intermediate Production19391947196151.2%GrossNationalProductIntermediateSales48.8%50.7%49.3%270Total GrossOutput43568851.2%48.8%

Input-Output Model BasicsTom HarrisUniversity of Nevada, RenoUniversity Center for Economic DevelopmentMS 204Reno, NV 89557-0105

and

Gerald A. DoeksenOklahoma State UniversityOklahoma Cooperative Extension Service515 Ag HallStillwater, OK 74078Disadur dari bahan kuliah:

Examples of Interrelationships Between Sectors:

Sectors purchase from other sectorsSectors sell to other sectorsSectors sell outside the local economySectors buy outside the local economy

Overview of Community Economic System

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

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

Uses of Input-Output Analysis

Provides a description of a local economyPredictive model to estimate impacts

3 Basic Components of Input-Output Models

Transactions TableDirect Requirements TableTotal Requirements Table

Transactions TableA transactions table shows the monetary flows of goods and services in a local economyRepresents monetary flows for a given time period, usually one year

Transactions Table FlowsTotal outlays = Total outputIntermediate purchases are goods and services purchased and used in the local production processFinal demands are purchases for final consumptionFinal payments are payments for factors or inputs outside intermediate production process

Example Transactions Table

Predictive Use of Input-Output AnalysisImpacts are tracked throughout the economyThe multipliers are derived from regional economic accountsOnly local transactions are used to create the multiplier effect

Direct Requirements TableDirect requirements are the purchases of resources (inputs) by a sector from all sectors to produce one dollar of outputCreates a production recipe

Selling Sectors Purchasing SectorsAgricultureHealthServices

Agriculture0.2780.1620.045Health0.1110.1080.068Services0.1670.0540.023Final Payments0.4440.6760.864

Total 1.0001.0001.000Direct Requirements Table

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

Three Types of Multipliersare calculated from Model1.Output2.Employment3.Income

Three levels of MultipliersType I MultipliersType II Multipliers Type III Multipliers

Type I MultipliersInclude direct or initial spendingInclude indirect spending or businesses buying and selling to each otherThe multiplier is direct plus indirect effect divided by direct effect

Type II MultipliersIncludes Type I Multiplier effectsPlus household spending based on the income earned from the direct and indirect effects the induced effects

TYPE III MULTIPLIERSType 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.

Type I Multipliers include:DirectIndirect (Business Spending)Type I Multipliers are derived from theTotal Requirements TableIn math, this is: X = (1-A)-1 Y

Selling Sectors ($ million)Purchasing Sectors ($ million)AgricultureHealthServices

Agriculture1.4460.2680.085Health0.1991.1630.090Services0.2580.1101.043Total 1.9031.5411.218Total Requirements Table

Explaining the Health Sector Type I Multiplier

For a $1.00 change in final demand sales in the local economy, the total direct and indirect impacts are $1.541

Type II Multipliers include:DirectIndirect (Businesses)Induced (Households)

Type II Multipliers are derived from the Total Requirements Table withHouseholds

Transactions Table with Households

Total Requirements Table with Households Selling SectorsPurchasing SectorsAgricultureHealthServicesHouseholds Agriculture1.5360.3690.1970.429Health0.3861.3700.3180.879Services0.3880.2561.2030.619Households0.2790.3110.3411.319

Total2.5892.3072.0593.245

Explaining the Health Sector Type II MultiplierFor a $1.00 change in final demand sales in the local economy, the total direct, indirect and induced impacts are $2.307

MultipliersDirect requirements represent direct or initial spendingDirect and indirect effects include the direct spending plus the indirect spending or businesses buying and selling to each otherDirect, indirect and induced effects include direct and indirect plus household spending earned from direct and indirect effects

Other MultipliersEmployment MultipliersType IType IIType IIIIncome MultipliersType IType IIType III

Example -Type I Employment Multiplier

Agricultural Sector Type I Employment Multiplier = 1.43When the Agricultural Sector realizes a 1 employee change, total employment in the study area changes by 1.43 jobs from direct and indirect linkages

Example Type II Employment Multiplier

Agricultural Sector Type II Employment Multiplier = 2.25

When the Agricultural Sector realizes a 1 employee change, total employment in the study area changes by 2.25 jobs from direct, indirect and induced linkages

Breakdown of Type II Employment Multiplier -Agricultural Sector

Direct Effects = 1.00Indirect Effects = 0.43Induced Effects = 0.82

Total= 2.25

Example Type I Income Multiplier

Agricultural Sector Type I Income Multiplier = 1.96

When the Agricultural Sector realizes a $1.00 change in income, total income in the study area changes by $1.96 from direct and indirect linkages

Example -Type II Income Multiplier

Agricultural Sector Type II Income Multiplier = 2.50 When the Agricultural Sector realizes a $1.00 change in income, total income in the study area changes by $2.50 from direct, indirect and induced linkages

Breakdown of Type II Income Multiplier -Agricultural SectorDirect Effects =$1.00Indirect Effects =$0.96Induced Effects =$0.54

Total=$2.50

Caution When Using MultipliersMultiplier values include direct effectsDo not aggregate sector multipliers to derive an aggregate multiplierBe cautious of large multipliersBe cautious in using a multiplier from another study area

Procedures Used For This AnalysisIMPLAN (IMPact analysis for PLANning)* Geographical database* Software and data for model construction and impact analysis* History of IMPLAN

IMPLAN USE FOR HEALTH SECTOR ANALYSISDevelop county-wide input-output modelFrom State Employment Security Offices derived health sector employmentUse IMPLAN to derive county-wide output, employment, income and sales tax impacts from the local health sector

Database of IMPLAN

528 Industrial SectorsMost 3 or 4 digit SICAll standard counties in the U.S.Now available at zip code level

Any Questions?

Econ Base vs Input-Output ModelsLeontief developed an input-output method for estimating economic impacts and tracing the flows of dollars. Leontief later won the Nobel Prize in 1973, largely related to this work.Input-Output expands heavily upon the economic base model of the economy.

Input-Output AnalysisMany different industries/sectorsRipple (multiplier) effects contained in the interindustry transactionsAnalyzes changes and impacts at a sector by sector level, tracing flows of dollars between industriesMuch more precise, but Economic Base TechniquesBasic and Non-basic sectorsRipple (multiplier) effects analyzed at the B/NB levelAnalyzes changes and impacts at a gross B/NB levelVery general, but

The Economic Base Theoretical ModelThe EB model assumes that the basic sector is the primary cause of local economic growth; that is, it is the economic base of the local economy. Non-Local $$$sBasic Sector EmploymentNon-Basic Sector EmploymentLocal $$$sThe Local Economy

Input-Output ModelThe IO model is centered on the idea of inter-industry transactions: Industries use the products of other industries to produce their own products.For example - automobile producers use steel, glass, rubber, and plastic products to produce automobiles.Outputs from one industry become inputs to another.When you buy a car, you affect the demand for glass, plastic, steel, etc.Taken from a Power Point presentation prepared by Pam Perlich at the University of Utah. http://www.business.utah.edu/~bebrpsp/IO/IO.ppt

Basic Input-Output LogicAutomobile Factory

From the Tire Producers PerspectiveTire FactorySchool DistrictsTrucking CompaniesAutomobile FactoryIndividual ConsumersINTER-MEDIATE DEMANDFORTIRESFINAL DEMANDFOR TIRES

Input-Output Analysis: The BIG PointThe implicit assumption in economic base techniques is that each basic sector job has a multiplier (or ripple) effect on the wider economy because of purchases of non-basic goods and services to support the basic production activity. (the Basic Sector drives the Non-basic Sector)However, we know that Non-basic sector businesses purchase Non-basic goods and services and Basic sector businesses purchase Basic sector goods and services. There are inter-industry linkages not contained within the Economic Base model. The economy is much more complex than the economic base techniques allow or attempt to model.The central advantage of Input-Output analysis is that it tries to estimate these inter-industry transactions and use those figures to estimate the economic impacts of any changes to the economy. Instead of assuming a change in a basic sector industry having a generalized multiplier effect, the IO approach estimates how many goods and services from other sectors are needed (inputs) to produce each dollar of output for the sector in question. Therefore it is possible to do a much more precise calculation of the economic impacts of a given change to the economy.

IO Conceptualization of the EconomyThe major conceptual step is to divide the economy into purchasers and suppliers.--Primary Suppliers: They sell primary inputs (labor, raw materials) to other industries. Payments to these suppliers are primary inputs because they generate no further sales. (example: Households)--Intermediate Suppliers: They purchase inputs for processing into outputs they supply to other firms or to final purchasers. (example: Automaker)--Intermediate Purchasers: They purchase outputs of suppliers for use as inputs for further processing. (example: Automaker)--Final Purchasers: Purchase the outputs of suppliers in their final form and for final use. (example: Households)Intermediate Suppliers and Intermediate Purchasers are the same thing!Primary Suppliers and Final Purchasers may or may not be the same entities. When they are the same (households), these activities are understood as separate activities.

Simplified Circular Flow View of The EconomyHouseholds buy the output of business: final demand or Yi

BusinessesBusinesses purchase from other businesses to produce their own goods / services. This is intermediate demand or xij (output of industry i sold to industry j)

Households sell labor & other inputs to business as inputs to productionTaken from a Power Point presentation prepared by Pam Perlich at the University of Utah. http://www.business.utah.edu/~bebrpsp/IO/IO.ppt

The Structure of IO AnalysisThe ultimate goal of the Input-Output Analysis technique is to generate a Total Requirements Table that shows the flows of dollars between industries in the production of output for a given sector.To arrive at this final result, IO Analysis requires two earlier steps:1) Transactions table: Contains basic data on the flows of goods and services among suppliers and purchasers during a study year.2) Direct requirements table: Derived from the transactions table, this shows the inputs required directly from different suppliers by each intermediate purchaser for each unit of output that purchaser produces.Input output analysis can be thought of as documenting and exploring the precise systems of interindustry exchange through which different components of regional product become different components of regional income. (Bendavid-Val, p. 87-88)Lets review Bendavid-Vals Islandia example.

The Transaction Table and Direct Reqs Tables

IO Example

Bendavid-Val's Example of Islandia

The Transactions Table

(in thousands of units)Total Direct and Indirect Requirements Calculation

Intermediate PurchasersFinal PurchasersTotal(in thousands of units)

--Agriculture--Manufacturing--HouseholdsSales (outputs)Sales to FinalTotalTotalTotal

Intermediate SuppliersPurchasersDirect SalesIndirect SalesSales

--Agriculture103060100Agriculture200.0080.0038.69318.69

--Manufacturing5103550Manufacturing100.0030.0014.87144.87

Primary SuppliersHouseholds--190.00109.57299.57

--Households851015110

Total300.00300.00163.13763.13

Total Purchases (inputs)10050110260

Total Requirements Table

Every Unit in Final Demand by

Direct Requirements TableRequires Total Sale byAgricultureManufacturing

(in thousands of units)Agriculture1.150.86

PurchasersManufacturing0.071.29

--Agriculture--ManufacturingHouseholds1.001.00

Intermediate SuppliersEvery unit of output

--Agriculture0.100.60requires inputs of a certainTotal2.223.15

--Manufacturing0.050.20amount from other areas

Primary Suppliersof the economy.For Agriculture1.00Sales to Final Purchasers

--Households0.850.201.00Sales by Primary Suppliers

0.22Interindustry transactions

Total Purchases (inputs)1.001.00Similar to our Base Multiplier in Econ Base Theory

A 1.0 unit increase in demand for agriculture leads to

Total Requirements Calculation (First Round)a total of 2.22 of sales.

(in thousands of units)

Sales toSales as Direct InputsFor Manufacturing1.00Sales to Final Purchasers

Final Purch.To AgrTo ManuTotal1.00Sales by Primary Suppliers

By Agriculture2002060801.15Interindustry transactions

By Manufacturing100102030Similar to our Base Multiplier in Econ Base Theory

By Households017020190A 1.0 unit increase in demand for manufacturing leads to

a total of 3.15 of sales.

Total indirect rounds

So, when Agr sales = 200 and Manu sales = 100

By All Supliers300300we would expect the following economic activity

Total Requirements Computations Using the Total Requirements Table

Total Requirements Calculation (Second Round)Final Delivery by

(in thousands of units)Requires Total Sale byAgricultureManufacturingTotal

Sales as Direct InputsAgriculture23086316

To AgrTo ManuTotalManufacturing14129143

By Agriculture8.018.026.0Households200100300

By Manufacturing4.06.010.0

By Households68.06.074.0Total444315759

WhereAgriculture Sales =200

Total indirect rounds110.0Manufac Sales =100

Total Requirements Calculation (Third Round)


Sales as Direct Inputs

To AgrTo ManuTotal

By Agriculture2.66.08.6


By Households22.12.024.1

Total indirect rounds36.0

Total Requirements Calculation (Fourth Round)



To AgrTo ManuTotal





Total Requirements Calculation (Fifth Round)



To AgrTo ManuTotal





Total Requirements Calculation (Sixth Round)



To AgrTo ManuTotal





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The First Round of Economic Impacts

IO Example











Total300.00300.00163.13763.13






Intermediate PurchasersManufacturing0.071.29

--Agriculture--ManuHouseholds1.001.00

Intermediate Suppliers

--Agriculture0.100.60Total2.223.15

--Manufacturing0.050.20

Primary SuppliersFor Agriculture1.00Sales to Final Purchasers



















Sales as Direct InputsAgriculture23086316

To AgrTo ManuTotalManufacturing14129143









To AgrTo ManuTotal








To AgrTo ManuTotal








To AgrTo ManuTotal








To AgrTo ManuTotal





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The Second-Fourth Rounds of Econ. Impactsand so onuntil the mult.effect ends

IO Example











Total300.00300.00163.13763.13






























Sales toSales as Direct InputsAgriculture23086316

Final Purch.To AgrTo ManuTotalManufacturing14129143








Sales toSales as Direct Inputs

Final Purch.To AgrTo ManuTotal









By Agriculture8.60.92.02.8

By Manufacturing3.30.40.71.1






To AgrTo ManuTotal








To AgrTo ManuTotal





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The Total Requirements ResultsWhen: there are Final Sales of Agriculture = 200 and Final Sales of Manufacturing = 1002) we see a Total Economic Impact = 763.1, with that impact broken down as:1) 300.0 in Initial Sales to Final Purchasers2) 300.0 in Total Direct Sales3) 163.1 in Total Indirect SalesThe 300 units in Final Sales generate an additional 463.1 units of economic activity. This illustrates the multiplier effect captured by IO models.

IO Example











Total300.0300.0163.1763.1



Every Unit in Final Demand of

Direct Requirements TableRequires Total Sales byAgricultureManufacturing




















































To AgrTo ManuTotal








To AgrTo ManuTotal





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The Total Requirements Table

IO Example











Total300.00300.00163.13763.13



Every Unit in Final Demand of

Direct Requirements TableRequires Total Sales byAgricultureManufacturing




















































To AgrTo ManuTotal








To AgrTo ManuTotal





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RIMS MultipliersThe Bureau of Economic Analysis (BEA) produces State Level Regional Input-Output Multipliers by industrial sector which are often used as the basis for constructing an IO model. Originally developed in the 1970s, RIMS (Regional Industrial Multiplier System) multipliers are used for impact analysis for a given economy.RIMS II data were developed in the 1980s (latest version is 1998) Users can purchase data from BEA for $275 per region. BEA provides handbooks for the use of this data. County or multi-county regional RIMS data come in two series Series I: for 490 detailed industries Series II: for 38 industry aggregationsEmpirical analysis shows that RIMS II data is accurate within 5% of locally developed industry multipliers.Advantages of the RIMS Multipliers: 1) Cheap2) Can be compared across regions 3) Detailed industries4) Updated regularly to reflect new data

Example RIMS Multipliers1Total dollar impact due to $1 in output in the industry. 2Change in earnings due to $1 change in industry. 3Change in employment resulting from $1 million increase in output delivered to final demand.

For More Info on RIMS MultipliersThe Bureau of Economic Analysis (BEA) has several web resources on RIMS Multipliers and how they are prepared:RIMSII Home Pagehttp://www.bea.doc.gov/bea/regional/rims/

Brief Description of RIMS IIhttp://www.bea.doc.gov/bea/regional/rims/brfdesc.cfm

RIMSII Users Handbookhttp://www.bea.doc.gov/bea/ARTICLES/REGIONAL/PERSINC/Meth/rims2.pdf

The Problems with IO AnalysisPractical IssuesData needs and complexity: IO models are tremendously complex and very data hungry. This typically places these models in the hands of experts.Theoretical IssuesTime/Data issues: Usually a single years data are used to develop the Total Requirements Table. But 1) purchases may actually reflect a longer term investment and 2) short term trends may impact the data.Stability of the technical coefficients over time: Technology changes, prices change, and demand changes, all affecting the coefficients in the Tot Reqs Table. This can impact the results if the coefficients are out of date.IO assumes a linear relationship between increasing demand for inputs and outputs: This assumes away 1) externalities and 2) increasing/ decreasing returns to scale.Industrial categorization: IO models still assume that each industry 1) has a single, homogeneous production function and 2) each produces one product. These assumptions do not reflect the real economy very well.

The Power of IO ModelsDespite these problems IO analysis is a tremendously popular and powerful analytical tool.The chief value of regional input-output analysis is in its descriptive analytical power. (Bendavid-Val, p.113)As a descriptive tool, input-output tables:-present an enormous quantity of information in a concise, orderly, and easily understood fashion; -provide a comprehensive picture of the interindustry structure of the regional economy; -point up the strategic importance of various industries and sectors; -highlight possible opportunities for strengthening regional income and employment multiplication. (Bendavid-Val, p.113)Urban Planners should be capable of understanding the structure, assumptions, and data requirements of Input-Output Analysis. While you may not be performing this analysis in your jobs, you almost certainly will come across this type of work sometime in your career.

input – output analysis

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