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# Input output analysis by roni bhowmik

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Input output analysis in Bangladesh by roni bhowmik

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### Input output analysis by roni bhowmik

1. 1. Input Output Analysis
2. 2. Welcome to my Presentation On November 17, 2013 University of Chinese Academy of Sciences
3. 3. Presented By Roni Bhowmik ID: 2013A8000212129 PhD Student Academy of Mathematics And Systems Science, University of Chinese Academy of Sciences
4. 4. DISSERTATION TITLE ON Input Output Analysis. ( 输入输出分析 .)
5. 5. Bangladesh… at a Glance         Name: People’s Republic of Bangladesh Area: 147,570 sq. km. Capital: Dhaka Government System: Parliamentary Population: 150 million Currency: Taka (৳) Main Export: Garments Product Official Language: English
6. 6. Cox’s Bazar (World longest sea beach)
7. 7. Sundarbans (World largest mangroves Forest)
8. 8. Modern Bangladesh Bangladesh present 2nd position the Garment Industries in the world Parliament House * designed by Louis I. Kahn Jamuna Bridge * 11th bridge in the whole world longest
9. 9. Honor…The Nobel Peace Prize 2006 Dr. Muhammad Yunus (Banker for the poor) and Grameen Bank
10. 10. Objective 1. What we have learned about input-output 2. 3. analysis One example of the usefulness of inputoutput analysis The possible ways to improve the inputoutput model
11. 11. Input-Output Analysis •Wassily Leontief b. 1905 •Nobel Prize, 1973 x = (I-A)-1 y …for the development of the input output method and for its application to important economic problems. Leontief passed away on Friday February 6th, 1999 Professor deals with this particular question: "What level of output should each of the n industries in an economy produce, in order that it will just be sufficient to satisfy the total demand for that product?"
12. 12. Examples of Interrelationships Between Sectors       Sectors Sectors Sectors Sectors Sectors Sectors purchase from other sectors sell to other sectors sell outside the local economy buy outside the local economy pay their employees pay taxes Input-Output analysis creates a picture of a regional economy describing flows to and from industries and institutions.
13. 13. Overview of Community Economic System Inputs \$ \$ Products Basic Industry Labor \$ \$ Inputs Goods & Services Households \$ \$ Services \$
14. 14. What Input-Output Analysis Can Do?  Input-Output Analysis is an accounting framework (Physical or in Monetary terms)  Input-Output analysis can be used to predict changes in overall economic activity as a result of some change in the local economy
15. 15. Uses of Input-Output Analysis  Provides a description of a local economy  Predictive model to estimate impacts
16. 16. Input-Output Table  Producers listed on the left  Purchasers listed across the top  From the column point of view, these show each sector’s inputs; from the row point of view the figures are each sector’s outputs; hence the name input–output table. These figures are the core of input–output analysis.
17. 17. “competitive” and “noncompetitive”  Competitive imports are goods that have a domestic counterpart (that is, are also produced in the Bangladesh).  Non-competitive counterpart. imports have no domestic
18. 18. The Price Model
19. 19. Input-Output Models An input/output table quantifies the transactions between sectors in an economy. It’s a “snap-shot” of the economy for a one-year period. By understanding these linkages, we are able to predict how a change in one sector will affect the other sectors. Multipliers can be estimated.
20. 20. Input-Output Table Inputs Outputs Interindustry Demand Final Demand Z Y Total Output, X
21. 21. Input-Output Models Three basic components of Input-Output Models Transactions Table Direct Requirements Table Total Requirements Table
22. 22. 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
23. 23. 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
24. 24. 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
25. 25. The Transaction Table and Direct Reqs. Tables The Transactions Table (in thousands of units) Intermediate Purchasers --Agriculture --Manufacturing Intermediate Suppliers --Agriculture --Manufacturing Primary Suppliers --Households Total Purchases (inputs) Final Purchasers --Households Total Sales (outputs) 10 5 30 10 60 35 100 50 85 10 15 110 100 50 110 260 Direct Requirements Table (in thousands of units) Purchasers --Agriculture --Manufacturing Intermediate Suppliers --Agriculture --Manufacturing Primary Suppliers --Households Total Purchases (inputs) 0.10 0.05 0.60 0.20 0.85 0.20 1.00 1.00 Every unit of output requires inputs of a certain amount from other areas of the economy.
26. 26. 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 By Manufacturing 100 10 20 30 By Households 0 170 20 190 Total indirect rounds By All Supliers 300 300 To Rd. 2
27. 27. 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 By Manufacturing 3.3 0.4 0.7 1.1 By Households 0 7.3 0.7 8.0 Total indirect rounds 11.9 and so on until the mult. effect ends
28. 28. The Total Requirements Results Total Direct and Indirect Requirements Calculation (in thousands of units) Sales to Final Total Total Purchasers Direct Sales Indirect Sales Agriculture 200.0 80.0 38.7 Manufacturing 100.0 30.0 14.9 Households -190.0 109.6 Total 300.0 300.0 163.1 Total Sales 318.7 144.9 299.6 763.1 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.
29. 29. The Total Requirements Table Total Requirements Table Requires Total Sales by Agriculture Manufacturing Households Total Every Unit in Final Demand of… Agriculture Manufacturing 1.15 0.86 0.07 1.29 1.00 1.00 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.
30. 30. Example Transactions Table Purchasing Sectors (\$ million) Agriculture Health Selling Sectors (\$ million) Agriculture Services Final Total Demands Output 10 6 2 18 36 Health 4 4 3 26 37 Services 6 2 1 35 44 Final Payments 16 25 38 0 79 Total Input 36 37 44 79 196
31. 31. 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
32. 32. 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
33. 33. Total Requirements Table Purchasing Sectors (\$ million) AgricultureHealth 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
34. 34. 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
35. 35. Three levels of Multipliers Type I Multipliers Type II Multipliers Type III Multipliers
36. 36. 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
37. 37. 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
38. 38. 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.
39. 39. 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
40. 40. 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 Basic Sector Employment Local \$\$\$’s Non-Basic Sector Employment The Local Economy
41. 41. How can we use I-O Model? Example: The effect of fuel tax on Bangladesh economy. Fuel tax Demand system Weight Income (GDP) Final demand I-O Model Output Emissions EIO Model GDP
42. 42. Basic Input-Output Problem The main problem of input-output analysis is the following: Consider an economy with several industries. Each industry has a demand for products from other instructress (internal demand). Because each industry has homogenous, and only one, production function. There are also external demands from the outside. Find a production level for the industries that will meet both internal and external demands.
43. 43. Example to show the usefulness of input-output analysis  IO tables serve primarily statistical purposes and provide an integrated framework for checking consistency and completeness of national accounts data.  IO tables provide the main macroeconomic aggregates such as GDP, components of value added and output by industry, import, final consumption, gross capital formation and export.  IO table describes the supply of goods and services, which are either produced in the domestic industry or imported.
44. 44. Simplicity I follow only one product in my example: Garments Sector
45. 45. Input-Output A product by product input-output gtable shows how much of each product is being used as input for the production of another product. Similarly, it also shows how much of each product is consumed by different user categories (production, households, government, non-profit institutions serving households, investment and foreign trade)
46. 46. Conclusion  The possible ways to improve the input-output situation model depend on