Input-Output Analysis

Input – Output Analysis

by: Arch. Merant B. De Vera, uap

Different methods of analysis could be used in planning the different programs indicated in the latest MTPDP. There were five main objectives stated. The first objective which is to ensure the sustainable growth and attain the higher end growth target in 2009 would need the Economic Base Analysis and the Input-Output analysis to know and analyze the current situation in the import and export of goods, to know the particular industry that grows, and to know which industry declines and needs more support from the government. To calculate performance of an area based on employment, the Shift-Share analysis could also be used.

In the words of its inventor, the Russian American economist Wassily Leontief, input-output analysis tables “describe the flow of goods and services between all the individual sectors of a national economy over a stated period of time.” Although constructing such a table is a challenge, this method has had a major impact on economic thinking. It is now widely used in socialist as well as capitalist countries. To ensure low and stable prices to support consumer spending and to enhance competitiveness in preparation for the global economic rebound, the Economic Base Analysis and the Input- Output Analysis should be done. The main reason for export is comparative advantage. Through these methods, the level of economic activity in the area and the relationships between the manufacturing and commercial industries would be analyzed and measured. The input-output analysis method is effective in gauging the effects of such changes as an increase or decrease in the price of a product or a shift in government spending policies, and it recently has been applied to determine how much waste is produced in different sectors of the economy and what resources might be needed to recycle or transform the waste into useful products.

Kurz, Dietzenbacher and Lager (1998) edited three volumes containing selected articles on input-output analysis. Part I of the Volume I is devoted to historical roots and the foundation of input-output analysis. In part II some important contributions to the theory and the application of dynamic input-output analysis are reprinted. Part III consists of selected articles on multiplier analysis, demographic accounting and modeling and extended input output models which take account of the demand for labor, the generation of income and consumers´ expenditure. Volume II contains four parts. Part I is concerned with input-output studies of energy demand and environmental models. Part II is devoted to the analysis of foreign trade and international models. Part III deals with regional and interregional input output tables and models. Part IV is concerned with methods which recast make and use matrices into the usual form of square sector by sector matrices used in input-output analysis. Volume III contains three parts. The first of them contains papers on .structural analysis.. The second part deals with price models. Part III takes account of the labor intensive process and the various methods used in compiling, projecting and forecasting of input-output data. For the Input-Output Analysis, the data required are the inputs and outputs of sales and purchases done by different sectors. By doing this method, the government will be able to trace the transactions of the goods and services produced. By doing the transaction, input-coefficient, and total requirements matrices, the government will know how much a peso of a certain industry sector translates into a certain value of pesos in sales.

Miller and Blair (1985) is one of the most comprehensive English textbooks on input output analysis. It contains chapters on the theoretical foundation of the input-output method, multiplier analysis, extensions to regional, interregional and multiregional input-output analysis and discusses energy and environmental modeling. The volume also deals with data related topics such as the temporal stability of input-output coefficients as well as methods to update or to project these coefficients. Two appendices, one devoted to the basics of matrix algebra and the other presenting some input-output tables of the U.S., complete the volume.

Strengths: It is a method to estimate the future total requirements of different sectors through the sales to final purchasers.  Input–output analysis is very good for identifying and quantifying the inter-relationships in a regional economy. Coefficients of production and multipliers are valuable in understanding which industries add the most throughout the economy. Input–output analysis is also very good for comparisons.

Weaknesses: The results of input–output analysis are only as good as the data that goes in to it. The analysis needs to be undertaken over a number of years if trends are to be discerned that will help with forward projections.