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Input-Output Models for Impact Analysis Suggestions for

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					          Input-Output Models for
              Impact Analysis:
          Suggestions for Practitioners Using RIMS II
                          Multipliers


                           Rebecca Bess
                   65th Annual AUBER Fall Conference
                             Indianapolis, IN
                            October 8-11, 2011

www.bea.gov
              Outline of Today’s Talk

     ▪   Input-output models
     ▪   Key assumptions
     ▪   Information required from users
     ▪   Multiplier selection
     ▪   Common mistakes




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                         I-O Multipliers

     ▪ Similarities to macroeconomic multipliers
           Initial change leads to additional spending
           Leakages (imports, saving, taxes)

     ▪ Differences from macroeconomic multipliers
           Measured inter-industry relationships
           No supply constraints

     ▪ Similar results between models more likely when
       resources are “slack”

     ▪ Advantages of industry-level detail


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                     Literature Review

     ▪ Macroeconomic multipliers
           Kahn (1931); Hall (2005)

     ▪ I-O multipliers
           Leontief (1938); Isard (1951); Richardson (1985);
            Beemiller (1990)

     ▪ Uses and misuses of multipliers
           Coughlin and Mandelbaum (1991); Mills (1993);
            Hughes (2003); Grady and Mullen (1988); Harris
            (1997); Siegfried, Sanderson, and McHenry (2006)


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                           National Use Table

   •   Intermediate inputs are commodities purchased by industries
   •   Value added is the income earned in production, including labor earnings
   •   Total gross output = Intermediate Inputs + Value Added
   •   GDP = Σ Value added = Σ Final use; GDP ≠ Total gross output




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                  Key Assumptions

     ▪   Backward linkages
     ▪   Fixed production patterns
     ▪   Industry homogeneity
     ▪   Fixed prices and no supply constraints
     ▪   Local supply conditions
     ▪   No regional feedback effects



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        Information Required from Users

     ▪ Final-demand change
           Expressed in terms of output, earnings, or employment
           Changes in demand from final users
               Personal consumption expenditures (C) ; Investment in new
                construction, equipment, software (I); Government (G); Exports (X)
     ▪ Final-demand industry
           Detailed or aggregate
           Consider project phases
     ▪ Final-demand region
           Purpose of the study
           Area of interrelated economic activity
               Location of industries supplying direct inputs
               Where most new employees will reside


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              Multiplier Selection




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                 Common Mistakes

     ▪ Not taking offsets into consideration
     ▪ Confusing gross output with regional GDP
     ▪ Confusing changes in investment with
       intermediate purchases
     ▪ Using final-demand changes in purchaser prices
     ▪ Using a Type II multiplier when a Type I
       multipliers is more appropriate
     ▪ Averaging or summing multipliers
     ▪ Using multipliers to measure industry
       contributions

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                   Further Suggestions

     ▪ Avoid using multipliers to estimate the
       impacts of:
           single events taking place over a short period of
            time
           an industry’s contribution to the economy,
            especially one of the economy’s largest industries
           changes large enough to affect the structure of the
            economy




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                   Thank You


                   Rebecca Bess
     RIMS II Section, Regional Product Division
        U.S. Bureau of Economic Analysis



               Phone: 202-606-5343
              E-mail: RIMS@bea.gov
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