Download Using Input Output Models for Policy Making

Using Input Output Models
for Policy Making
September 29-30, 2006
Thijs ten Raa
Tilburg University
the Netherlands
[email protected]
Use and Make Matrices
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uij represents the amount of commodity i used by industry j
vij represents the amount of commodity i made by industry j
vij - uij is the net output of commodity i produced by industry j
Summing over industries: Gross Domestic Product (GDP)
Summing over commodities: Gross Domestic Income (GDI)
Leontief: Balans narodnogo khoziaistva SSSR
metodologicheskii razbor rabotii TSSU
Planovoe Khoziaistvo 12, 254-58 (1925)
Input-output coefficients
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U = AV + ε
Regress the inputs on the outputs
Estimate the coefficients, including their confidence intervals
Need at least as many observations (firms or industries) as
commodities
• Published use and make tables have less industries than
commodities
• Then how construct input-output coefficients?
IO Analysis without the A-matrix
• Productivity analysis:
• Find potential output preserving the composition of final demand
max u :
s,u
(V U )s  (V U )eu
Ls  N
s0
( p)
(w)
( )
The Lagrange multipliers
• Tell by how much potential output increases if you add a unit to
the factor constraint
• Hence they are the factor productivities
• Add over factors: (Total) Frontier Productivity FP
• Its growth rate can be seen to be equal to the residual between
potential output growth and factor input growth
• It can be decomposed in industry Solow Residuals plus the
terms of trade effect: FP = SR + TT
• Total Factor Productivity growth TFP is the residual between
actual output growth and factor input growth
• TFP = FP + EC = SR + TT + EC, where EC = -(du/dt)/u
The Canadian economy
1962-1974 1974-1981 1981-1991
SR
1.7
-1.3
-0.3
TT
0.7
0.5
3.8
EC
-0.6
0.9
-3.7
TFP
1.8
0.1
-0.1
Further IO Analysis without the A-matrix
• Impact of free trade: Comparative advantage and adjustment
• Efficiency analysis of firms, industries and the national economy
• Measurement of competition and its effect on performance
Neoclassical economists argue it is positive, Schumpeter argues
it is negative. The evidence is insignificant.
IO Analysis decomposes departures from competition in labor
rent and capital rent. Opposite effects!
ten Raa The Economics of Input-Output Analysis
Cambridge University Press 2005