Intrasectoral homogeneity and the accuracy of multisectoral models

In regional science, there is a class of linear, multisectoral models whose solutions were first found as the summation of a power expansion series. Regional input-output models, Garin-Lowry models and Markov chain models represent familiar examples. Each begins with a partitioning of system state space into discrete sectors. Each generates sector-specific multipliers. Accurate estimation of multipliers depends, in part, upon the degree of homogeneity within system state space sectors. This paper's first objective is to explore the effects intrasectoral heterogeneity on multipliers used in a Markov model of residential vacancy chains. Its second objective is to develop a method for defining internally homogeneous sectors. Our data is a linked 1975-'80-'85 file on housing and population in Gävle, Sweden. It is used to calibrate vacancy chain models with crude and refined sectoral definitions. Matrix algebra is used to find the effects of sectoral definitions on vacancy chain lengths. Long-linear analysis is used to measure the contribution of sectoral refinements to overall data variation. A two-stage, nested clustering strategy is used to define homogeneous sectors for two time periods. Finally questions are advanced about the stability of sectoral definitions, multisectoral relationships, and the dynamics of sectoral formation.     

New evidence of agriculture as an underdeveloped sector of the U.S. economy

The most frequently used form of macroeconomic model at the state and also sub-state levels has been input-output analysis. A principal problem of input-output studies has been the high cost of constructing transaction tables describing economic flows in the model. As an alternative, this paper develops an econometric inter-industry model to quantify the linkages between the agricultural and non-agricultural sectors of state and sub-state economies. The model is estimated for the 48 contiguous states, and value added multipliers are calculated for agriculture and basic industries. In contrast to conventional views, the results from this study indicate that, at the margin, a majority of the states are over-industrialized and underdeveloped in agriculture. Increased agricultural output without significant increases in costs would be relatively more important than additional production in basic industries. This situation is no doubt new, resulting from the current structure of the U.S. economy.     

A location quotient approach to producing regional production multipliers for the Irish economy

Regional issues in Ireland, although a relatively small and geographically homogenous country, attract considerable attention, much of which centres on the size of Dublin and the South East and its perceived dominant share of the national economy. Using location quotients (LQs) analysis and linking the production multipliers to their two digit NACE codes, this paper presents the first exploration of possible regional industrial specialization in related sectors in Ireland at the NUTS 2 level. Linking the production multipliers with NACE codes by region allows one to explore whether potential region specialization is associated with Jacobian externalities in Ireland. Using a relatively novel LQ approach, and a cut‐off value of 1.25 or above as an indicator of industrial specialization and clustering, this paper found that in the Border, Midlands West (BMW) region and the South East region, 29 and 32 sectors respectively had LQ greater than the cut‐off value of 1.25. In terms of Jacobian externalities, this paper found businesses in related sectors; particularly finance and insurance and transport and telecommunications are more likely to cluster in the BMW region. From a policy perspective this would indicate that there may be a role for the Regional Assemblies, particularly the Assembly for the BMW region to help develop and co‐ordinate regional industrial policy in Ireland. From a regional science perspective, this paper adds empirical evidence to the literature on Jacobian and related variety in regional economies.     

Some reflections on input-output multipliers

It is possible to identify some important inconsistencies in the definition of the components of input-output multipliers derived in the conventional manner. This paper identifies these inconsistencies which occur in output, income and employment multipliers, with the result that valid comparison of direct and indirect effects between multipliers is not possible. A suggested re-definition of input-output multipliers, considered to be free of these inconsistencies, is provided and illustrated.     

Demographic-economic forecasting within an activity-commodity framework: some theoretical considerations and empirical results

"This paper presents a methodology which allows demographic and economic forecasting models to be integrated in a consistent manner. By embedding a conventional static Leontief input-output model within an activity analysis framework, a number of interesting results are obtained. First, a new series of production, income, and employment multipliers is derived which offers considerable advantages over those currently in use. Second, partitioning the framework provides fresh insights into the complex relationships between demographic and economic variables. These developments in methodology are tested in a case study of Merseyside where an operational version of the framework is applied in a forecasting context."     

Intraregional trade shares for goods-producing industries: RPC estimates using EU data

The lack of subnational trade data has dampened the development of reliable regional and multiregional models for regional policy development. So, most researchers and vendors of regional and interregional economic models continue to rely on location quotients, supply–demand pool techniques, or minor modifications of them, despite knowing that they under-estimate interregional trade. In this piece, we analyse the relative viability of estimates of intraregional trade—so called “regional purchase coefficients” (RPCs). We do so for manufacturing sectors in 28 EU countries using the World Input–Output Database. We introduce an RPC-estimating technique using a quasi-binomial regression approach for goods-producing industries; we apply standard supply/demand ratios as RPCs for service-based industries. We then apply the estimates to an aggregate EU input–output (I-O) table and measure how closely the results approximate the I-O tables (direct requirements matrices) for each of the 28 EU nations. We compare these findings to those obtained by other conventional approaches. We also evaluate their ability to replicate the country Leontief inverses and output multipliers. We find quasi-binomial regression approaches superior across the board.     

An input–output analysis of Thailand's construction sector

Three input–output (IO) tables compiled between 1995 and 2000 were used to examine the significance of the construction sector and its relationships with other sectors of the Thai economy. The pull and push effect of the Thai construction sector to the national economy indicated that the former is much larger than the latter. Additionally, the relatively high output multipliers and backward linkage indicators showed that the construction sector had the potential to trigger off production in many economic sectors linked to it. An aggregated sectoral analysis revealed the high dependence of construction on manufacturing followed by services. The findings also suggest that the trends of the profile of inputs and outputs are correlated to the economic conditions in Thailand at the time the IO tables were compiled. Finally, the results of employment analysis showed that although the share of construction sector in direct employment generation may not be very large, its economic importance lies in its direct and indirect contribution to employment through strong backward linkage effects. Consequently, when its backward linkages and output multiplier are considered together with the employment opportunities latent within it, then the construction sector could be a major contributor to the economic growth of Thailand.     

Dynamic variable input-output (VIO) model and price-sensitive dynamic multipliers

The conventional multipliers of macro economic models, econometric models, Computable General Equilibrium (CGE) models with fixed industrial purchase I/O coefficients, and Leontief Input-Output (I/O) models are price-insensitive. On the other hand, the multipliers of the Dynamic Variable Input-Output (VIO) model have the advantage of being price-sensitive. The Dynamic VIO model extends the static single regional version of the Multi-Regional Variable Input-Output (MRVIO) model, which is a hybrid of Computable General Equilibrium (CGE) model and the further developed Leontief's dynamic Input-Output (I/O) model. The Dynamic VIO model, which incorporates time dimensions, can describe the actual situations more accurately while maintaining computational simplicity. Under this model, both technical coefficients and capital stock requirement coefficients include price terms, and they become variable instead of being fixed. By using the 15 sector industrial transaction table derived from the 1987 U.S. Benchmark input-output table, and by assuming constant technology during the years of 1987–1991, I estimate the dynamic equilibrium price changes due to wage rate changes and measure the effects of the relative equilibrium price changes on output, income, and employment multipliers that are spread over the time periods. The dynamic multipliers of the Dynamic VIO model include both pure spending effect and substitution effect in the presence of input cost changes such as wage rate changes. The substitution effect is the relative equilibrium price change effect, and it occurs due to the substituting behavior of firms and consumers seeking cheaper products. Actual economic impacts that we observe in a given time period, as the result of government spendings, are the total cumulative effects of the current and previous time periods. The empirical analysis shows that wage rate changes during 1987 through 1991 give statistically significant effect on mean equilibrium price changes for the total of five years and for each time period except the immediate time period (lag 0) under 1% level of significance. As for the immediate time period (lag 0), mean equilibrium prices are same between the two groups of wage rate-change and no-wage rate-change cases. Nevertheless, equilibrium price changes affect output, income, and employment multipliers significantly. Hypothesis tests show that significant differences exist in mean output, income, and employment multipliers between the two groups of wage rate-change and no-wage rate-change cases for each time lag (1–4) and for the total of five time lags. The dependent t-test is applied to the paired data. The study concludes that substitution effects do alter mean output, income, and employment multipliers for each time lag (1–4) and for the total of all five time lags under 1% level of significance. Furthermore, the study finds that mean multipliers of output, income, and employment under the wage rate-change case are smaller than those under the no-wage rate-change case. For the immediate time period (lag 0), the significance level should be increased to 2%, 13%, and 5%, respectively, to support the claim that mean multipliers of output, income, and employment are different between the two groups, and that mean multipliers of output, income, and employment of the wage rate-change case are smaller than those of the no-wage-rate change case. These strong empirical results demonstrate the capability and usefulness of the Dynamic VIO model for measuring government spending effects in terms of price-sensitive dynamic multipliers. Received: May 2000 / Accepted: August 2003 I am grateful to Roger R. Stough and three anonymous referees for valuable comments and suggestions. If there is any error, it is solely mine.     

Enterprise zone policy: developing sustainable economies through area-based fiscal incentives

The reintroduction of enterprise zone policy in the UK and less explicit forms of zones found in area-based fiscal incentives used in Europe, North America and India offers much to the policy discourse on economic growth. The use of enterprise zones previously to generate economic activity in depressed areas and among disadvantaged has a mixed success. However, the use of current enterprise zone policy in the UK as a tool for promoting high-growth sectors with potential – digital industries, niche engineering, biotechnology and green sectors – represents a departure from the enterprise zone model as an urban welfare tool. It draws greater parallels with the use of fiscal incentives used in North America, on which this article reflects. Drawing on the experiences of the digital media, arts and green sectors in Vancouver, British Columbia, this article notes the vulnerabilities created in an economy based on fiscal incentives that lure transient inward investors, as opposed to sticky growth and added value, and local employment and wealth produced by indigenous investment. Indeed, it is argued that a fiscal-led economic policy lies in contradistinction to the workings of genuine knowledge-intensive sectors, which operate on the basis of spatial proximity and agglomerations, rather than the principles of lowest cost. Together these might offer some salutary warnings about what is possible from the reintroduction of enterprise zone policy in the UK.     

Estimation of regional input coefficients and output multipliers for the regions of Chile

The greatest limitation for carrying out intersectoral studies at the regional level is the lack of regional input–output tables. This study compares various indirect methods to estimate regional output multipliers in 15 regions of Chile through Monte Carlo simulation. The augmented Flegg location quotient (AFLQ) method (δ = 0.5) is chosen since it presents the best behaviour to estimate regional input coefficients and output multipliers. However, the value of δ is sensitive to the number of regions and/or sectors and to the use of simulated or real sectoral gross domestic product (GDP) in each region. So, it is recommended that when it is possible, a simulation of Monte Carlo simulation be carried out to select this parameter in each country and not simply adopt values extracted from the literature.     

Sectoral productivity gains in two regional economies: key sectors from a supply-side perspective

The traditional literature to identify key sectors, based on an input–output demand-side approach, evaluates the impact on sectoral production of the exogenous inflows to activities. This approach has been the centre of an important debate, based on the lack of robustness of the results provided, that questions their usefulness for planning decisions. In this paper, we propose a novel method to analyse the key sectors of an economy that differs from the traditional approach in two aspects. First, we use a supply-side approach comprising exogenous increases in sectoral productivity. Second, we use a computable general equilibrium model that captures the complete relations between the economic agents and their optimisation behaviour. The computable general equilibrium model, which assumes perfect competition and cleared markets of goods and factors, allows to identify those sectors with the greatest impact on consumer’s welfare, which will be considered the key sectors of the economy. In particular, we apply our method to detect key sectors in two regional Spanish economies (Catalonia and Extremadura).     

The dynamic variable input-output model: An advancement from the Leontief dynamic input-output model

The Dynamic Variable Input-Output (VIO) model extends the static single regional version of the Multiregional Variable Input-Output (MRVIO) model which is a general equilibrium model applied to the Leontief Input-Output model. The Dynamic VIO model which incorporates time dimensions can describe the real situation more accurately while maintaining the computational simplicity. Under the model, the investment expenditures are directly linked with the profit maximizing behavior of firms. Both technical coefficients and capital stock requirement coefficients include price terms, and they become variable instead of being fixed.  By gathering investment terms together instead of separating them as is done in Leontief's Dynamic output equation, we not only preserve the consistency between time-specific dynamic multipliers and total dynamic multipliers, but also get over the shortcoming of the negative occurences of the Leontief's multiplier matrices, particularly the impact (initial period) multiplier matrix.  Using the 15 sector interindustry transaction table derived from the 1987 U.S. benchmark input-output table, we estimate dynamic output and income multipliers for all industries.  Empirical results show that, over all industries, dynamic total multipliers of the Dynamic VIO model are larger than static multipliers of the static Household Interactive VIO (HIVIO) model. Static multipliers of the static Household Interactive VIO (HIVIO) model which lie between Leontief's static type I and type II multipliers are exactly the same as the impact (initial period) multiplier of the Dynamic VIO model. Similarly, dynamic total multipliers of the Dynamic VIO model are larger than those of the Leontief static type I and type II multipliers, and multipliers of the Leontief dynamic (in nested form) IO model. Thereby, the study demonstrates that the static HIVIO model and the Leontief IO models (both static and dynamic (in nested form)) underestimate actual impacts. The study also shows that the sum of all time-specific multipliers of the dynamic VIO model equals to dynamic total multiplier; thus, consistency is ensured in the dynamic multipliers of the Dynamic VIO model. The multipliers of the dynamic VIO model vary among different industries, and they decrease as the number of time lags increase with the initial period impact as the largest. The percent distributions of multipliers over time periods reveal that ripple effects of spending are mostly recognized during the first four periods. The dynamic multipliers of the Dynamic VIO model are useful information in evaluating the long-term economic effects of spending. Received: August 1996/Accepted: March 1999     

Dynamic multipliers for a regional input-output model

Regional multiplier is a very useful and popular tool in economic study of a region. However, conventional regional multiplier derived from a static input-output model fails to provide time path of the impact over period. In many cases, it restricts the impact within a year period. To alleviate the problem, this paper introduces a regional dynamic multiplier which makes the impact to spread out over period. In the absence of the technical change, each period multiplier added up to the static multiplier. Utilizing Oklahoma data, the paper estimates the capital coefficients and the dynamic multipliers of Oklahoma regional economy. Finally, it provides a comparative study of dynamic multipliers for various industries.The author is grateful to Professor Wassily Leontief who generously sent him the U.S. Capital Coefficient data and to the referees for their valuable suggestions. This research was supported in part by the Center for Economic and Management Research, the University of Oklahoma. Mr. Chun K. Chang and Mr. Ui Nam Choi provided computer assistance and data gathering works. The final revision was done at Harvard University.     

Location choice and land use in an isolated state

The purpose of this study is to develop an urban model describing an economic dynamics of three parts — the CBD, the residential area and the agricultural area — in an isolated urban system. The system consists of three — agricultural, industrial, and service — sectors. The model describes dynamic interactions among capital and knowledge accumulation with endogenous urban structure. The model may be considered, in a broad sense, as a synthesis of new urban economics (Alonso's model), urban economic growth theory with endogenous knowledge and Thünen's economic system. We show that the urban dynamics may have either a unique or multiple equilibria and may be either stable or unstable, depending upon creativity of various economic activities. We also examine effects of changes in some parameters upon the long-run urban structure.     

A new kind of production and value-added multiplier for assessing the scale and structure effects of demand shocks in input–output frameworks

The main purpose of this paper is to develop a new kind of input?Coutput multiplier that would be particularly well suited to quantifying the impacts of final demand changes on the sectoral output or value-added growth potential of an economy. Instead of using the traditional output multipliers, solving an appropriate optimization problem provides what can be called input?Coutput Euclidean distance multipliers. The method does not impose unitary final demand shocks with a fixed (predetermined) sectoral structure, thus allowing the economy to change across the spectrum of all possible final demand variations represented by vectors of modulus 1. It can be very helpful in measuring interindustry linkages and key sectors in a national or regional economy. An empirical illustration is made, using national (Spain and Portugal) and regional (Balearic Islands and the Azores) input?Coutput data.     

Quantifying fiscal multipliers in Italy: A Panel SVAR analysis using regional data

Applying panel SVAR modelling to 1995–2017 regional data, we estimate fiscal multipliers in Italy at national and sub-national level and find that expansionary fiscal policies produce positive and persistent effects on GDP. Fiscal multipliers remain larger than 1 even 10 years after a discretionary fiscal policy is implemented. Government investment stimulates output more than government consumption. Moreover, fiscal multipliers are higher in Centre-Northern regions than in Southern ones. Such evidence is confirmed when fiscal foresight is considered. Our findings support the Keynesian perspective, indicating that Italy should increase public investments to foster economic growth especially in the poorest Southern regions.     

The size of home ownership sectors and the newly industrialized countries

The body of literature that sets out to explain the national variations in the relative size of home ownership sectors has concentrated on the Western, or old industrial countries (OIC). A brief review of this literature suggests that political and ideological explanations appear more useful than forms of economic determinism. The paper considers the extent to which these explanations are equally applicable to the newly industrialized countries (NIC). Case studies of Hong Kong and Singapore indicate that their tenure patterns can be interpreted as pragmatic responses to the perceived needs, in different national contexts, of economic development.     

The propensity for employee participation by electrical and mechanical trades in the construction industry

Using the four input-output tables compiled in Turkey to date, the aim of this paper is to examine the construction sector's role in the Turkish economy and analyse its relationships with the other sectors of the national economy. Analysis results show that the share of construction in Gross National Product (GNP) and National Income (NI) tend to increase whereas the GNP share of manufacturing is relatively stable and that of services tend to increase after an abrupt decrease in 1985; backward linkage indicators and output multipliers, as well as forward linkage indicators and input multipliers of construction industry are stable; and finally, direct and total construction inputs from manufacturing show relative stability and those from services tend to increase in recent years. These findings point out the similarities between the Turkish construction industry and some advanced industrial countries (AICs) like Japan and Italy showing signs of growing ‘maturity’ of the Turkish economy.     

Reassessing productivity in the construction sector to reflect hidden innovation and the knowledge economy

With the development of a knowledge economy, it is reasonable to assume that the level of innovation should be particularly high and that it should have a major effect on investment and productivity across all sectors, including the construction industry. For a valid assessment of the economic performance of the construction sector in terms of its productivity, it is important that the economic benefits for the sector from technological change are properly recognized but the impact of such benefits may be ‘hidden’ due to measurement issues, as innovative activity and investment in intangible assets have both gone unrecognized in official statistics. Much of the innovation in the construction sector is hidden from conventional measures and, for the UK economy, there is evidence that investment in intangibles may be even greater than tangible investment, if a definition of intangible assets incorporating spending on a broad range of knowledge‐based assets including organizational capital, human capital, etc. is taken. While accurate data are difficult to determine, an appraisal of the potential for utilizing existing data sources and for improved measurement is presented.     

Water footprint assessment considering intermediate products: model and a 2016 case study of China

Analysing intermediate products within a water footprint (WF) across different economic sectors can show the root causes of water usage and is helpful for water resource management and policy making. However, conventional methods and data for a WF rarely assess the input and output of intermediate products directly and comprehensively. Therefore, this study proposes an approach to access the WF of intermediate products as well as final products in each sector of an economy’s water sustainability profile. An Economic Input‐output‐based Life‐Cycle Assessment (EIO‐LCA) framework is designed for the accounting, which describes the intermediate WF products of each sector in a material‐product network. This method is implemented into a 2016 case study for a comprehensive Chinese WF. The results showed that the total WF of Chinese inhabitants (consumers) in 2016 was 5.76 × 10¹¹ m³, and the top three sectors with the largest WF were agriculture (1.78 × 10¹¹ m³), food (1.05 × 10¹¹ m³) and machinery manufacturing (5.68 × 10¹⁰ m³); agriculture provided the largest quantity of virtual water contained in its intermediate product for the other sectors. From the perspective of producers, the total WF of the Chinese economic sectors in 2016 was 5.84 × 10¹¹ m³. The sectors with the largest direct water use were agriculture (2.20 × 10¹¹ m³), electricity (7.64 × 10¹⁰ m³) and chemical Industry (2.35 × 10¹⁰ m³); and large parts of their direct water usage were consumed to prepare intermediate products for other sectors. The results of this study show that a more inclusive approach provides an enhanced qualitative and resource‐ethical view for water accounting and management.