Input-Output Models for Impact Analysis: Suggestions for

Input-Output Models for
Impact Analysis:
Suggestions for Practitioners Using RIMS II
Rebecca Bess
65th Annual AUBER Fall Conference
Indianapolis, IN
October 8-11, 2011
Outline of Today’s Talk
Input-output models
Key assumptions
Information required from users
Multiplier selection
Common mistakes
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
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)
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
Key Assumptions
Backward linkages
Fixed production patterns
Industry homogeneity
Fixed prices and no supply constraints
Local supply conditions
No regional feedback effects
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
Multiplier Selection
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
Further Suggestions
▪ Avoid using multipliers to estimate the
impacts of:
 single events taking place over a short period of
 an industry’s contribution to the economy,
especially one of the economy’s largest industries
 changes large enough to affect the structure of the
Thank You
Rebecca Bess
RIMS II Section, Regional Product Division
U.S. Bureau of Economic Analysis
Phone: 202-606-5343