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Input-Output Model

Input-Output Model. Sittidaj Pongkijvorasin Faculty of Economics, Chulalongkorn University. What is I-O Model?.

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Input-Output Model

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  1. Input-Output Model Sittidaj Pongkijvorasin Faculty of Economics, Chulalongkorn University

  2. What is I-O Model? • The Input-output model of economics uses a matrix representation of a nation's (or a region's) economy to predict the effect of changes in one industry on others and by consumers, government, and foreign suppliers on the economy. (Wikipedia) • First developed by Leontief, who later won Nobel Prize for this.

  3. Concept • Industries are interdependent • 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. • When you buy a car, you affect the demand for glass, plastic, steel, etc.

  4. Tires Glass Plastic Other Components Steel Automobile Factory garnet.acns.fsu.edu/~tchapin/urp5261/lectures/Input-Output%20Overview.ppt

  5. From the Tire Producer’s Perspective Individual Consumers FINAL DEMAND FOR TIRES School Districts Tire Factory Trucking Companies INTER- MEDIATE DEMAND FOR TIRES Automobile Factory garnet.acns.fsu.edu/~tchapin/urp5261/lectures/Input-Output%20Overview.ppt

  6. $$ Consumption Spending (Yi) Goods & Services Businesses Households Labor $$ Wages & Salaries Simplified Circular Flow View of The Economy Businesses Businesses purchase from other businesses to produce their own goods / services. This is intermediate demand or xij (output of industry i sold to industry j) Households sell labor & other inputs to business as inputs to production Households buy the output of business: final demand or Yi Taken from a Power Point presentation prepared by Pam Perlich at the University of Utah.http://www.business.utah.edu/~bebrpsp/IO/IO.ppt

  7. Outputs Final Demand Y Interindustry Demand Z Inputs Total Output, X Input-Output Table

  8. Computation

  9. Computation

  10. Purchasing Sectors ($ million) Agriculture Health Services Final Total Demands Output 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 Selling Sectors ($ million) Concept

  11. Advantage • Sector-level analysis (170 sectors for Thailand, 4xx sectors for the U.S.) • General equilibrium • Easy to construct (if I-O table exists), suitable for the real-world policy analysis

  12. Fuel tax Demand system Weight Income (GDP) Final demand I-O Model Output Emissions EIO Model How can we use I-O Model? • Example: The effect of fuel tax on Thai economy. GDP

  13. The problems of I-O Model • Data availability • Constant technical coefficients: “snapshot” • Linear relationships between inputs and outputs (no externality, constant return to scale) • Each industry has homogenous, and only one, production function

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