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Input – Output Analysis

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					Input – Output Analysis


    MK Geografi Ekonomi
   Dept. Geografi FMIPA UI
Next …………
A simple model of trade


                            Exports

           Internal Goods
           and Services



 Imports
The Economic Base Model
 ET = Total Employment
 EX = Export Employment
 EL = Local Employment

 ET = EX + EL        (1)

 Define a = EL/ET
 Multiply by ET and substitute into (1):
 ET = EX + aET
 Solve for ET:

 ET = ( 1/1-a)EX
 Example, Economic Base
          Model
If 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 Multiplier
  Direct Surveys
  “Short-cut” Approaches:
       Assumption or Assignment
       Minimum Requirements
       Location Quotients
  Industry Specific Models:
       Input-output
       Regional econometric
              Example of Minimum
                 Requirements
               Minimum Requirements Manufacturing

       0.12
        0.1
       0.08
                                                    mfg85
       0.06
                                                    mfg95
       0.04
       0.02
          0
              10           100            1000
                     Total Employment (Thousands)


If total employment was 100,000, then minimum requirements
is 6%, or 6,000. If actual employment were 10,000, 4,000 would
be assigned to exports.
Repeat for all industries, sum local shares to obtain “a”
Example of Location Quotient
Approach to Economic Base

Industry    Jobs      LQ     Export          Local
Agriculture 500       0.8    0               500
Mining      300       5.0    240             60
Manufacturing1000     2.0    500             500
Retail      1500      1.0    0               1500
Services    3000      1.2    500             2500

Total         6300           1240            5060

a = 5060/6300 = .803, so (1/1-.803) = 5.08
   Size of Region and Size of
            Multiplier

  1.0

  .67


                Wn.State
                Mult. = 3
                                 World - Mult = 
Individual      Log Population
Sells all labor
a = 0, multiplier = 1.0
       Regional Input-Output Models
                                        Final Demand
             Industry   Industry   Consump-   Invest-   Govt.   Exports   Total
             1          2          tion       ment                        Sales
Industry 1
Industry 2
Labor
Income
Other
Value
Added
Imports
Total
Purchases

         Total Sales = Total Purchases
         Total Sales = Intermediate Sales + Final Sales
         Total Purchases = Intermediate Purchases + Value Added
                + Imports
        Washington State
       Input-Output Model
Handouts: Transactions Table
Direct Requirements Matrix
Direct & Indirect Requirements Matrix
Direct, Indirect, & Induced Requirements
     Matrix
Input-Output Notation
  Impact Analysis Using I/O
          Models




                                    Final Demand
             Direct, Indirect
             & Induced
Output




         =                      X
             Requirements
             Matrix




Employment Impacts calculated from Output Impacts
   Impact Analysis with I/O
           Models
Key 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
                    1   1.2   1.4   1.6   1.8   2

Natural Resources
   Food Products
  Forest Products
       Machinery
       Aerospace
       Other Mfg
     Construction
           T.C.U.
           Trade
         Services
Direct & Indirect Labor Income
 Per Dollar of Final Demand
                     0   0.1   0.2   0.3   0.4   0.5   0.6

 Natural Resources

    Food Products

   Forest Products

        Machinery

        Aerospace

        Other Mfg

      Construction

            T.C.U.

            Trade

          Services
     Direct & Indirect Jobs Per $
        Million Final Demand
                    0   5   10   15   20   25

Natural Resources

   Food Products

  Forest Products

       Machinery

       Aerospace

       Other Mfg

     Construction

           T.C.U.

           Trade

         Services
              Output Multipliers
                1.00   1.50   2.00   2.50   3.00

Natural Resources

   Food Products

  Forest Products

       Machinery
                                                   Direct & Indirect
       Aerospace

       Other Mfg                                   Direct, Indirect &
                                                   Induced
     Construction

           T.C.U.

           Trade

         Services
        Labor Income Multipliers
                    0   0.2   0.4   0.6   0.8   1

Natural Resources

   Food Products

  Forest Products

       Machinery
                                                      Direct & Indirect
       Aerospace

       Other Mfg                                      Direct, Indirect, &
                                                      Induced
     Construction

           T.C.U.                                   Labor Income
           Trade
                                                    Per $ Final Demand

         Services
        Employment Multipliers
                    0   5   10   15   20   25   30

Natural Resources

   Food Products

  Forest Products

       Machinery
                                                     Direct & Indirect
       Aerospace

       Other Mfg                                     Direct, Indirect &
                                                     Induced
     Construction

           T.C.U.

           Trade

         Services
 Regional Models, continued
• Regional Econometric Models


• Interregional Input-output
models

• Structural Change
   Regional Econometric Models
   The Washington Projection & Simulation
                  Model
           Coefficient
           Change               Consumption


Imports       Output              Exports           National
          (I/O Relations)                          Econometric
                                                     Model
                                State & Local
                Employment      Government
      Income        and
                                 Investment
                 Population

                              Productivity Rates
           Wage rates, tax rates, nonearnings income
  WPSM Simulation of Change in
      Aerospace Exports
                         Aerospace Exports
160
140                      Value-added

120                      Consumption
100
                         State & Local
 80                      Expenditures
 60                      Fixed Investment

 40                      Disposable Income
 20
                         Persons Employed
  0                      (hundreds)
  1975    1980    1985   Population
                         (hundreds)
     Multiregional Models



               Region B
Region A

                          Region D


           Region C
   Multiregional Input-Output Model
   (intermediate & final transactions
  including interregional value added
               payments)

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
      Feedback Loops
 Simulation of Columbia Basin
Irrigation Project Development
       United States (AK & HI Inset)


                       Project Region



         Other Washington
         Estimate of Employment
        Impacts from Multiregional
                  Model
       4000
                                      Local Agriculture
       3500
       3000                           Local Food
       2500                           Products
Jobs




                                      Other Local Jobs
       2000
       1500                           Project Construction
       1000
        500                           Other Washington
                                      Jobs
          0
              0       10         20
                  Project Year
               Gross Output Levels
              Required to Deliver 1961
                  Final Demand
General 37.6%         39.8%
Industries                      40.8%

Materials 18.5%      17.0%       14.7%
Metalworking
& Chemicals          14.5%      16.0%
          13.6%
                      28.8%
All Other 30.3%
                                28.5%
Total Gross
Output         677    689        686
              1939   1947       1961
 Employment Required to Deliver 1961
Final Demand with earlier Technologies
            101       86      58      Millions of man-years
    100%

      80%                                 All Other
                                          Chemicals
      60%
                                          Metalworking
      40%
                                          Materials
      20%                                 General Industries

       0%
              1939    1947     1961

Source: A. Carter, Structural Change in the American Economy
   Capital Stock Required to Deliver 1961
               Final Demand
                               $ 1961 F.D.
       662     617     523
100%
                                All Other
80%
                                Chemicals
60%
                                Metalworking
40%
                                Materials
20%
                                General Industries
 0%
       1939   1947    1958
               U.S. Structural Change -
              Output, GNP, Intermediate
                      Production
Gross
                      50.7%
National 51.2%                   51.2%
Product


  Intermediate
  Sales                49.3%    48.8%
         48.8%

Total Gross
Output         270     435        688
              1939    1947       1961
Input-Output Model Basics

        Disadur dari bahan kuliah:


                    Tom Harris
            University of Nevada, Reno
   University Center for Economic Development
                      MS 204
              Reno, NV 89557-0105

                      and

             Gerald A. Doeksen
          Oklahoma State University
    Oklahoma Cooperative Extension Service
                  515 Ag Hall
            Stillwater, OK 74078
     Examples of Interrelationships
         Between Sectors:

•   Sectors purchase from other sectors
•   Sectors sell to other sectors
•   Sectors sell outside the local economy
•   Sectors buy outside the local economy
              Inputs                                 $


                   $         Basic                   Products
                            Industry
Overview of
Community
                                $       $
 Economic              Labor                Inputs
  System                    Goods &
                            Services

                   Households       $        Services




               $                                         $
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
  framework
• Input-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
  economy
• Predictive model to estimate impacts
       3 Basic Components of
        Input-Output Models

• Transactions Table
• Direct Requirements Table
• Total Requirements Table
         Transactions Table
• A transactions table shows the monetary
  flows of goods and services in a local
  economy
• Represents monetary flows for a given
  time period, usually one year
      Transactions Table Flows
• Total outlays = Total output
• Intermediate purchases are goods and services
  purchased and used in the local production
  process
• Final demands are purchases for final
  consumption
• Final payments are payments for factors or
  inputs outside intermediate production process
                    Example Transactions Table
                                         Purchasing Sectors ($ million)

                                Agriculture Health    Services    Final   Total
                                                                 Demands Output
Selling Sectors
($ million)




                  Agriculture       10        6           2         18     36
                  Health             4        4           3         26     37
                  Services           6        2           1         35     44
                  Final             16       25          38          0     79
                  Payments


                  Total Input       36       37          44        79     196
            Predictive Use
       of Input-Output Analysis
• Impacts are tracked throughout the
  economy
• The multipliers are derived from regional
  economic accounts
• Only local transactions are used to create
  the multiplier effect
     Direct Requirements Table
• Direct requirements are the purchases of
  resources (inputs) by a sector from all
  sectors to produce one dollar of output
• Creates a production recipe
                          Direct Requirements Table
                                     Purchasing Sectors

                                   Agriculture      Health   Services
Selling Sectors




                  Agriculture         0.278         0.162     0.045
                  Health              0.111         0.108     0.068
                  Services            0.167         0.054     0.023
                  Final Payments      0.444         0.676     0.864


                  Total               1.000         1.000     1.000
     What are Multipliers?

Multipliers measure total change
    throughout the economy
     from one unit change
       for a given sector.
Three Types of Multipliers
are calculated from Model
 1. Output
 2. Employment
 3. Income
Three levels of Multipliers

   Type I Multipliers
   Type II Multipliers
  Type III Multipliers
            Type I Multipliers
• Include direct or initial spending
• Include indirect spending or businesses
  buying and selling to each other
• The multiplier is direct plus indirect effect
  divided by direct effect
           Type II Multipliers
• Includes Type I Multiplier effects
• Plus household spending based on the
  income earned from the direct and indirect
  effects – the induced effects
       TYPE III MULTIPLIERS
• Type 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:
  Direct
  Indirect (Business Spending)
Type I Multipliers are derived from the
Total Requirements Table

 In math, this is:    X = (1-A)-1 Y
                          Total Requirements Table
                                  Purchasing Sectors ($ million)

                                Agriculture        Health          Services
Selling Sectors
($ million)




                  Agriculture       1.446            0.268           0.085

                  Health            0.199            1.163           0.090

                  Services          0.258            0.110           1.043

                  Total             1.903            1.541           1.218
   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:
    Direct
    Indirect (Businesses)
    Induced (Households)


Type II Multipliers are derived from
the Total Requirements Table with
Households
     Transactions Table with Households
                                       Purchasing Sectors ($ million)

                                Ag   Health   Services House-         Final Total
                                                        holds      Demands Output
Selling Sectors
($ million)




                  Ag            10      6          2          2         16     36
                  Health         4      4          3         10         16     37
                  Services       6      2          1          7         28     44
                  Households     3      6         10          0          0     19
                  Final         13     19         28          0          0     60
                  Payments

                  Total Input   36     37         44         19         60    196
                      Total Requirements Table
                          with Households
                                    Purchasing Sectors

                                Agriculture   Health     Services Households
Selling Sectors




                  Agriculture     1.536       0.369      0.197      0.429
                  Health          0.386       1.370      0.318      0.879
                  Services        0.388       0.256      1.203      0.619
                  Households      0.279       0.311      0.341      1.319


                  Total           2.589       2.307      2.059      3.245
Explaining the Health Sector
      Type II Multiplier

   For a $1.00 change in final
   demand sales in the local
economy, the total direct, indirect
and induced impacts are $2.307
                   Multipliers
• Direct requirements represent direct or initial
  spending
• Direct and indirect effects include the direct
  spending plus the indirect spending or
  businesses buying and selling to each other
• Direct, indirect and induced effects include direct
  and indirect plus household spending earned
  from direct and indirect effects
           Other Multipliers
• Employment Multipliers
    Type I
    Type II
    Type III
• Income Multipliers
    Type I
    Type II
    Type III
           Example -
   Type I Employment Multiplier

• Agricultural Sector Type I Employment
  Multiplier = 1.43

   When 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     =   1.00
    Indirect Effects   =   0.43
    Induced 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 Sector

  Direct Effects   =   $1.00
  Indirect Effects =   $0.96
  Induced Effects =    $0.54

  Total           =    $2.50
Caution When Using Multipliers


 • Multiplier values include direct
   effects
 • Do not aggregate sector multipliers
   to derive an aggregate multiplier
 • Be cautious of large multipliers
 • Be cautious in using a multiplier
   from another study area
         Procedures Used
         For This Analysis

• IMPLAN (IMPact analysis for PLANning)

     *   Geographical database
     *   Software and data for model
          construction and impact analysis
     *   History of IMPLAN
    IMPLAN USE FOR HEALTH
       SECTOR ANALYSIS

• Develop county-wide input-output model
• From State Employment Security Offices
  derived health sector employment
• Use IMPLAN to derive county-wide output,
  employment, income and sales tax
  impacts from the local health sector
       Database of IMPLAN


•   528 Industrial Sectors
•   Most 3 or 4 digit SIC
•   All standard counties in the U.S.
•   Now available at zip code level
Any Questions?
       Econ Base vs Input-Output Models
• Leontief 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.
     Economic Base Techniques               Input-Output Analysis
1)   Basic and Non-basic sectors    1)   Many different
                                         industries/sectors
2)   Ripple (multiplier) effects    2)   Ripple (multiplier) effects
     analyzed at the B/NB level          contained in the interindustry
3)   Analyzes changes and impacts        transactions
     at a gross B/NB level          3)   Analyzes changes and impacts
4)   Very general, but…                  at a sector by sector level,
                                         tracing flows of dollars
                                         between industries
                                    4)   Much more precise, but…
  The Economic Base Theoretical Model
• The 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
  $$$’s


                              Local
                              $$$’s
            Basic Sector               Non-Basic Sector
            Employment                  Employment


                           The Local Economy
                   Input-Output Model

• The 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
                       Taken from a Power Point presentation prepared by
     glass, plastic, steel, etc.the University of Utah.
                       Pam Perlich at
                          http://www.business.utah.edu/~bebrpsp/IO/IO.ppt
    Basic Input-Output Logic
                     Tires
        Glass                  Plastic     Other
Steel
                                         Components




                Automobile Factory
From the Tire   Individual
 Producer’s     Consumers

 Perspective                     FINAL
                   School
                   Districts    DEMAND
                               FOR TIRES
 Tire Factory     Trucking
                  Companies




                                 INTER-
                  Automobile
                                MEDIATE
                    Factory     DEMAND
                                   FOR
                                  TIRES
     Input-Output Analysis: The BIG Point
• The 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
    IO Conceptualization of the Economy
• The 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
          Simplified Circular Flow View of The
                        Economy
                                $$ Consumption Spending (Yi)


                               Goods & Services

      Households                                        Businesses         Businesses
                                   Labor

                              $$ Wages & Salaries           Businesses purchase from
                                                           other businesses to produce
 Households buy                     Households sell
                                                           their own goods / services.
   the output of                     labor & other
  business: final                  inputs to business          This is intermediate
  demand or Yi                        as inputs to          demand or xij (output of
                                       production          industry i sold to industry j)

Taken 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 Analysis
• The 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-
   The Transaction Table and Direct Reqs
The Transactions Table
                       Tables
(in thousands of units)
                               Intermediate Purchasers         Final Purchasers    Total
                               --Agriculture --Manufacturing   --Households        Sales (outputs)
    Intermediate Suppliers
    --Agriculture                       10                30                  60              100
    --Manufacturing                      5                10                  35               50
    Primary Suppliers
    --Households                        85                10                  15              110

    Total Purchases (inputs)           100                50                 110              260



Direct Requirements Table
(in thousands of units)
                                        Purchasers
                               --Agriculture --Manufacturing
    Intermediate Suppliers                                     Every unit of output
    --Agriculture                     0.10              0.60   requires inputs of a certain
    --Manufacturing                   0.05              0.20   amount from other areas
    Primary Suppliers                                          of the economy.
    --Households                      0.85              0.20

    Total Purchases (inputs)          1.00              1.00
  The First Round of Economic Impacts
          Direct Requirements Table
          (in thousands of units)
                                                   Intermediate Purchasers
                                                   --Agriculture    --Manu
                                  Intermediate Suppliers
                                  --Agriculture                0.10      0.60
                                  --Manufacturing              0.05      0.20
                                  Primary Suppliers
                                  --Households                 0.85      0.20

                                  Total Purchases (inputs)   1.00       1.00

Total Requirements Calculation (First Round)
(in thousands of units)
                                 Sales to         Sales as Direct Inputs
                                 Final Purch.     To Agr           To Manu Total
          By Agriculture                      200             20         60       80    To
          By Manufacturing                    100             10         20       30   Rd. 2
          By Households                         0            170         20      190

          Total indirect rounds

          By All Supliers                     300                               300
The Second-Fourth Rounds of Econ.
                                 Impacts
Total Requirements Calculation (Second Round)
(in thousands of units)
                                  Sales to     Sales as Direct Inputs
                                  Final Purch. To Agr           To Manu Total
          By Agriculture                   80              8.0        18.0    26.0
          By Manufacturing                 30              4.0         6.0    10.0
          By Households                     0            68.0          6.0    74.0

          Total indirect rounds                                             110.0

Total Requirements Calculation (Third Round)
(in thousands of units)
                                 Sales to     Sales as Direct Inputs
                                 Final Purch. To Agr           To Manu Total
          By Agriculture                  26              2.6        6.0      8.6
          By Manufacturing                10              1.3        2.0      3.3
          By Households                    0            22.1         2.0     24.1

          Total indirect rounds                                              36.0

Total Requirements Calculation (Fourth Round)
(in thousands of units)
                                 Sales to     Sales as Direct Inputs
                                 Final Purch. To Agr           To Manu Total
          By Agriculture                  8.6             0.9        2.0     2.8       and so on
          By Manufacturing                3.3             0.4        0.7     1.1     until the mult.
          By Households                     0             7.3        0.7     8.0      effect ends

          Total indirect rounds                                              11.9
           The Total Requirements Results
Total Direct and Indirect Requirements Calculation
(in thousands of units)
                               Sales to Final     Total         Total        Total
                                 Purchasers   Direct Sales Indirect Sales    Sales
           Agriculture                  200.0           80.0          38.7     318.7
           Manufacturing                100.0           30.0          14.9     144.9
           Households                --                190.0         109.6     299.6

          Total                       300.0           300.0         163.1      763.1
 When:
 1) there are “Final Sales” of Agriculture = 200 and “Final Sales” of
    Manufacturing = 100
 2) we see a Total Economic Impact = 763.1, with that impact broken
    down as:
        1) 300.0 in Initial Sales to Final Purchasers
        2) 300.0 in Total Direct Sales
        3) 163.1 in Total Indirect Sales
    The 300 units in Final Sales generate an additional 463.1 units of
    economic activity. This illustrates the multiplier effect captured by
    IO models.
         The Total Requirements Table
Total Requirements Table
                               Every Unit in Final Demand of…
Requires Total Sales by        Agriculture     Manufacturing
          Agriculture                     1.15           0.86
          Manufacturing                   0.07           1.29
          Households                      1.00           1.00

          Total                           2.22             3.15

          For Agriculture                   1.00 Sales to Final Purchasers
                                            1.00 Sales by Primary Suppliers
                                            0.22 Interindustry transactions
          Similar to our Base Multiplier in Econ Base Theory
          A 1.0 unit increase in demand for agriculture leads to
          a total of 2.22 of sales.

          For Manufacturing                 1.00 Sales to Final Purchasers
                                            1.00 Sales by Primary Suppliers
                                            1.15 Interindustry transactions
          Similar to our Base Multiplier in Econ Base Theory
          A 1.0 unit increase in demand for manufacturing leads to
          a total of 3.15 of sales.
                     RIMS Multipliers
• The 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 1980’s (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 aggregations
• Empirical analysis shows that RIMS II data is accurate within 5%
  of locally developed industry multipliers.
• Advantages of the RIMS Multipliers:
       1) Cheap                2) Can be compared across regions
       3) Detailed industries 4) Updated regularly to reflect new
  data
               Example RIMS Multipliers




1Totaldollar 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 Multipliers
• The Bureau of Economic Analysis (BEA) has several web
   resources on RIMS Multipliers and how they are
   prepared:
RIMSII Home Page
http://www.bea.doc.gov/bea/regional/rims/

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

RIMSII User’s Handbook
http://www.bea.doc.gov/bea/ARTICLES/REGIONAL/PERSI
   NC/Meth/rims2.pdf
          The Problems with IO Analysis
Practical Issues
• Data needs and complexity: IO models are tremendously complex
  and very data hungry. This typically places these models in the
  hands of experts.
Theoretical Issues
• Time/Data issues: Usually a single year’s 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
               The Power of IO Models
• Despite 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.

				
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