Professor Alejandro Diaz Bautista, Input Output Conference, June 2012.


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Input Output Economics: Empirical Applications in Mexico and International Experience in the Development of Input Output Analysis. Professor Alejandro Diaz-Bautista, June 2012.

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  • League of California Cities Los Angeles County Division April 5, 2007 LAEDC: Jack Kyser
  • League of California Cities Los Angeles County Division April 5, 2007 LAEDC: Jack Kyser
  • Professor Alejandro Diaz Bautista, Input Output Conference, June 2012.

    1. 1. “Input Output Economics: Empirical Applications in Mexicoand International Experience in the Development of InputOutput Analysis" Dr. Alejandro Díaz-Bautista Catedrático y Profesor Investigador en Economía, Colef Professor of Economics at Colef prepared for “Estado Actual de la Investigación delAnálisis Insumo-Producto en México”, El Colegio de la Frontera Norte,June 14 and 15, 2012, Baja California, Mexico
    2. 2. Input Output EconomicsInput-output economics refers to the study of the effectsthat different sectors have on the economy as a whole, fora particular nation or region. This type of economicanalysis was originally developed by Wassily Leontief,who later won the Nobel Memorial Prize in EconomicSciences for his work on this model.Input-output analysis allows the various relationshipswithin an economic system to be analyzed as a whole,rather than individual components. The present studyshows some of the empirical applications in Mexico andthe international experience in the development of InputOutput Matrix and analysis.
    3. 3. Input Output EconomicsAn understanding of the economy as consisting of linkedsectors goes back to the French economist François Quesnay,but was developed in general form by Léon Walras in 1874.Leontiefs contribution was to state the model in such a way asto make computation feasible.With his first publications from 1936 to 1941 Leontief foundedthe input output analysis. Dantzig developed in 1951 the simplexalgorithm to solve linear optimization problems. His simplexalgorithm is still the basic foundation of linear programming andoperations research. While Dorfman, Samuelson and Solowdiscussed in 1958 the close relationship between input-outputanalysis and linear programming
    4. 4. Input-Output TechniquesInput-output techniques have been widely used in impacteconomic analysis and forecasting models that combinean economy-wide scope with a high degree of industrialdetail. One of the central problems with the input-output(IO) tables is that their compilation is extremely timeconsuming. This implies that they only become availablewith a serious time lag and that typically they arepublished only once every few years. A consequence isthat empirical analyses are always based on data that arenot up-to-date.
    5. 5. International Input output AnalysesInput output analyses are widely used in highlyindustrialized societies and developing countries. In theUnited States, the Department of Commerce, for example,has generated several input-output matrices, including theBench-Mark Tables. In Europe, countries as Denmark,France, Germany, the Netherlands, Norway, Spain andthe United Kingdom, estimate input-output matrices everyfive years. In Latin America input-output matrices areestimated every few years in Argentina, Colombia, CostaRica, Cuba, Mexico and Puerto Rico. Other countries witha long tradition of producing this analytical instrument areIndia, Japan and Russia.
    6. 6. OECD Input Output TablesAt the regional level, the OECD Input-Output tablesincludes matrices of inter-industrial flows of transactions ofgoods and services (domestically produced and imported)in current prices, for all OECD countries (except Iceland)and 15 non-member countries, covering the years 1995,2000 and 2005 or nearest years. Tables for four countries(Cyprus, Malta, Latvia and Lithuania) have been recentlyadded as well as an estimated table for the EU has awhole. The latest set of OECD Input-Output tablesconsists of 48 countries and economies with data foryears around 2005.
    7. 7. Input-Output Analysis in Planned and Unplanned EconomiesBefore World War II, there was considerable debateamong economists about the benefits of having a plannedeconomy versus an unplanned economy.A totally planned economy was the former Soviet Unionwhich was generally considered the prototype, and anunplanned economy by which was usually meant alaissez-faire system in which all economic decisions weremade by the invisible hand of the market place.
    8. 8. United States Input Output AnalysisHowever, the first government agency to undertake theconstruction of a full-scale national input-output table wasthe Bureau of Labor Statistics of the Department of Laborin the U.S. This effort resulted in the publication of a 50-sector table of interindustry relations in the United Statesand of a much more detailed 200-sector table with finerindustrial and sectoral classifications. To construct thistable, a separate Division of Interindustry Economics hadbeen established in the Bureau of Labor Statistics. Animportant result of this early work in input-output analysiswas a projection of the U.S. economy to 1950.
    9. 9. United States Input Output AnalysisIn the United States the annual input-output (I-O)accounts provide a time series of detailed, consistentinformation on the flow of goods and services that makeup the production processes of industries. For each yearbeginning with 1998, the accounts show how industriesinteract as they provide inputs to, and use outputs from,each other to produce GDP. The annual I-O accounts canbe used to study changes in structure of the U.S.economy and the relative importance of an industry to allother industries. The accounts are an important tool foranalysis because they show the production functions ofindividual industries and the interactions among producersand between producers and final users in the economy.
    10. 10. United States Input Output AnalysisThe Industry Economic Accounts (IEA) preparesbenchmark input-output (I-O) accounts in the U.S. foryears ending in 2 and 7, which are based on detaileddata from the quinquennial economic censuses thatare conducted by the Bureau of the Census. Thebenchmark accounts show how industries interact atthe detailed level; specifically, they show howapproximately 500 industries provide input to, and useoutput from, each other to produce gross domesticproduct. These accounts provide detailed informationon the flows of the goods and services that make upthe production processes of industries.The 2002 benchmark I-O accounts are presented inthe standard make and use tables and severalsupplementary tables.
    11. 11. Canada’s Input Output AnalysisIn Canada, input-output tables are published on an annualbasis. The publications begin in 1961 for the nationalinput-output tables, and the provincial input-output tablesare available from 1997. Input-output tables are availablefor different levels of aggregation. Statistics Canadaoperates national and interprovincial input-output models.The models are open and they calculate the direct andindirect effects only.Statistics Canada calculates national and provincialmultipliers for all industries at all levels of aggregation.Multipliers for special impact can be calculated using theNational and Interprovincial input-output models.
    12. 12. Germany’s IO AnalysisInput-output accounts in Germany are compiled centrallyat the Federal Statistical Office. As are the other sub areasof national accounting, they are a secondary statisticsand, consequently, use a multitude of basic statistics.Due to European requirements, the Federal StatisticalOffice in Germany provides the supply and use tableannually, and not later than 36 months after the end of thereference period to the European statistical office(Eurostat). Although input-output tables must be suppliedto Eurostat only every five years, they are compiled andpublished by the Federal Statistical Office for everyreference year.
    13. 13. Norwegian IO modelThe Norwegian annual MODAG model has beenwidely used for a range of issues over the last 20years, mostly related to government demand andrecently about the effects of a membership ofNorway in the European Union.MODAG is an input-output based model which isused in short and medium term macroeconomicplanning and policy analysis.
    14. 14. European Input Output TableWhile the European Input Output Table can be used to evaluate theimpact of different policies on macroeconomic variables such asgross domestic product, employment, consumption, productivity,competitiveness, etc, as well as on the environment. Moreover, inputoutput techniques allow quantitative impact assessment of policyactions either for regional, national or international levels.The Institute for Prospective Technological Studies (IPTS) of theEuropean Commissions DG Joint Research Centre is developinginput-output based models as a tool to support the development ofEuropean policies. The latest progress is the elaboration of acomplete homogeneous set of 27 symmetric input-output tables atindividual Member State level and an aggregate EU 27 table.
    15. 15. Australia’s Input Output TablesThe Australian IO Tables provide detailed information aboutthe supply and use of products in the Australian economyand about the structure of and inter-relationships betweenAustralian industries.With the release of the 2005-2006 Tables Australia hascompleted 21 input-output tables with the first set of tablesproduced for 1958-59. The ABS now produces the IO tableson an annual basis with a release date approximately threeyears after the reference period.The 2006-07 IO tables for Australia were released inNovember 2010 and will be the first set of tables toincorporate changes to the System of National Accounts(SNA08) and a new industry classification (ANZSIC06).
    16. 16. Input-Output Analysis for theBRICsIn recent years, India has attracted attentions togetherwith Brazil, China and Russia as one of the newlyemerging market economies called the “BRICs”.BRIC is an acronym that refers to the economies of Brazil,Russia, India, and China, which are seen as majordeveloping economies in the world. The generalconsensus is that the term was first prominently used in aGoldman Sachs report during 2003, which speculated thatby 2050 these four economies would be wealthier thanmost of the current major economic powers. The BRICcountries are now responsible for approximately 18% ofthe worlds Gross Domestic Product and home to 40% ofthe earths population.
    17. 17. India’s Input Output TablesThe compilation of I-O tables in India was started in theearly 1950’s.India’s I-O tables have been constructed following theprinciples of the System of National Account (SNA) that isdetermined by the United Nations (UN) as an internationalstandard and thus the presentation format of the India’stables is similar to many other countries’ I-O tables.Researchers are now examining the possibility ofcompiling the BRICs international I-O table byinvestigating the features of the BRICs I-O tables.
    18. 18. China’s Input Output TableIn China, Input-output tables were published every 5years. Extended tables were published in the middle ofevery 5 years. The complete Input-output tables of China(tables of 1987, 1990, 1992, 1995, and 1997).The source of the current input-output (I-O) table for Chinais the Input-Output Table of China 2002 from theDepartment of National Economy Accounting, StateStatistical Bureau (SSB). The original 2002 table in Chinaincludes 122 sectors, of which there are 5 sectors foragriculture, 81 sectors for manufacture, and 36 sectors forservices.
    19. 19. Brazil’s Input Output TableIn the view of constructing I-O tables, Brazil is relatively young in itsexperience compared to other countries of the similar developmentstage. Only after the 1970s, the Brazilian Institute of Geography andStatistics (IBGE) took its leading role to construct input-outputaccounts.However, the Brazilian I-O table developed very rapidly from itsoutset, and it is now considered to be one of the most advancedstatistical series in terms of the data availability, speed of release, andconformity with the international standards. The official (symmetrical)I-O tables of Brazil, together with supply and use tables, are availablefor the years 1970, 1975, 1980, 1985, 1990, 1991, 1992, 1993, 1994,1995 and 1996. For the years from 1997 to 2005, only the informationabout supply and use tables at purchaser prices can be found in thenational accounts.
    20. 20. Russia’s Input Output TableThe work on compilation of IO tables in the Soviet Union started in thelate 1950’s. First IO tables for the year 1959 were compiled by theCentral Statistics Office for 83 industries in monetary form and for 157commodities in physical form. Further, the IO table for the year 1966was produced (110 industries and 237 commodities), and the one forthe year 1972 (112 industries and 247 commodities). Later, thefollowing tables were produced: the five-yearly IO tables for 1977,1982, 1987. The detailed IO tables served as a base for annual IOtables with 18 aggregate sectors.Since 1993 the National Statistics Office has accepted the System ofNational Accounts. The first IO table for the national economy underthis framework was compiled for the year 1995. So far, the annual IOtables have been compiled on its basis. The latest IO table releasedfor the year 2003 is compiled for 22 aggregate sectors. The IO tablesfor Russia now become available on average around 3 years after thereference period.
    21. 21. Input-Output Analysis in MexicoThe input-output matrix represents an indispensable tool inMexico and the INEGI Institute develops input outputprojects through the System of National Accounts ofMexico, since it represents the starting point and frame ofreference of the products obtained.It reflects and updates the formal relationships that carryout the various sectors and economic agents involved in allphases of the cycle (production, consumption andaccumulation), and also provides detailed logs that servebasis for modifying the base years of the calculations arecarried out.
    22. 22. Input-Output Analysis in MexicoMexico has six input-output matrices referring to the years1950, 1960, 1970, 1975, 1978 and 1980. Also, for this lastyear, Mexico has a matrix for the agriculture and forestrysector. In regards to the matrices of 1950 and 1960, theywere developed by the Bank of Mexico and were allowed tointegrate the first set of consolidated accounts of the country,while the following matrices were made by the Department ofStatistics (DGE) of National Institute of Statistics, Geographyand Informatics (INEGI).The matrix of 1970, which was first developed by the DGE,introduced substantial improvements in relation to theprevious ones, in both the conceptual framework and dataprocessing, and the level of detail of the matrix. It alsoestablished the methodological basis for the development offurther matrices prepared in Mexico. The matrices for 1975and 1978 were part of an upgrade of 1970, while the matrix of1980 introduced innovative features in relation to thepreceding matrix.
    23. 23. Input-Output Analysis in MexicoThe input-output matrices in Mexico are considered aspictures of intersectoral transactions valued at producerprices, in millions of pesos, from which other tables arederived. The technical coefficients, direct and indirectrequirements and import matrices, in millions of dollars,with corresponding technical coefficients. The breakdownthat occurs with different matrices corresponds to 32sectors in 1950 and 45 sectors in 1960. Since 1970, thebreakdown is expanded to 73 branches of economicactivity.The matrices follow the International Standard IndustrialClassification (ISIC) of all Economic Activities, Series Mprepared by the United Nations Organization (UN) and theMexican Classification of Activities and Products (CMAP) in1994.
    24. 24. Input-Output Analysis in MexicoThe estimates of the components of final demand were based on theincome-expenditure surveys of households, government administrativerecords, the balance of payments and specific research in the area,which have enabled the estimation of private consumption, governmentconsumption, gross capital formation and exports. Special mentionshould be made for the use of the data presented in the currentaccount of the balance of payments, as well as allowing estimates forexports that make possible to construct the arrays of imports.At the regional and state levels, several input output matrices havebeen constructed in recent years by universities and research centersin Mexico. The results of input-output matrices are used especially as abasis for structural studies of the economy and for analyses of thedirect and indirect impact of changes in demand, prices and wages onthe overall economy and on the various sectors. In addition, they are abasis that can flexibly be used for model and simulation calculations aswell as forecasts.
    25. 25. ConclusionsThe input output (IO) model gives an overview of the structure of aneconomic system. It is important to note that an IO model can be quiteuseful in viewing the world economy as an integrated system. Theinput output method is now being used as a basic analytical tool bygovernment agencies in a large number of countries around theworld.The structure of the input output model has been incorporated intonational accounting in many developed and developing countries, andas such forms an important part of measures such as GDP.In addition to studying the structure of national economies, inputoutput economics has been used to study regional economies withina nation, and as a tool for national and regional economic planning.Indeed a main use of input-output analysis is for measuring theeconomic impacts of events and projects as well as publicinvestments or economic programs. Input output models are alsoused to identify economically related industry clusters and keyindustries that are most likely to enhance the internal structure of aspecified economy.
    26. 26. INFORUM ModelsThe recent Interindustry Forecasting at the University of Maryland(INFORUM) models were developed by Clopper Almon at theUniversity of Maryland. The INFORUM models are internationallylinkable, dynamic, interindustry models which imitates as closely asthe economy behaves. They are intended for both public policyanalysis and business forecasting. The models are contrasted withclassical input output models, pure econometric models andcomputable general equilibrium models. The model uses regressionanalysis to describe the behavior of consumers, producers, exporters,importers, investors, or other economic decision makers. It usesexplicit and usually changing input-output relations among industries.That use assures absolute accounting consistency, on the productionside, among final demands, intermediate use, and production ofproducts and, on the price side, among prices of products, the costsof materials used and the value added generating in making them.
    27. 27. The input output equation model system is the following: Z = B(I - A)-1Y is the common equation system of input-outputanalysis.whereB = matrix of input coefficients for specific variable in economicanalysis (intermediates, labor, capital, energy and emissions).I = unit matrix.A = matrix of input coefficients for intermediates.Y = diagonal matrix for final demand.Z = matrix with results for direct and indirect requirements(intermediates, labor, capital, energy and emissions).Matrix B includes the input coefficients of the variable underinvestigation (intermediates, labor, capital, energy, emissions).The diagonal matrix Y denotes exogenous final demand for goodsand services.The matrix Z incorporates the results for the direct and indirectrequirements (intermediates, labor, capital, energy) or joint products(emissions) for the produced goods and services.
    28. 28. The Model of Dynamic Input-Output Analysis.Standard models of dynamic input output analysis consider that someinputs contribute to the production process but are not immediatelyused up during production. In other words, a sector has a certaincapital stock of machinery, buildings and transport equipment that isalso necessary for production. In consequence, investments arerequired for replacements and capacity additions.The dynamic input-output models are designed in line with themultiplier-accelerator analysis of macroeconomic theory. According tothis theory it is expected that investment is induced if final demand isexpected to grow.
    29. 29. The Model of Dynamic Input-Output Analysis.We assume that induced investment is a function of expected growth.The model equations are:Xt = AXt + Ct + DtDt = BXt+1 - BXtXt = AXt + Ct + BXt+1 - BXt(I – A + B)Xt = Ct + BXt+1The production of period t is defined:Xt = (I – A + B)-1 (Ct + BXt+1)while the production of period t+1 is determined by:Xt+1 =B-1[(I – A + B)Xt - Ct]X = output. Y = final demand. I = unit matrix ; A = input coefficients forintermediates. (I-A)-1 = matrix of cumulative input coefficients (inverse).B = input coefficients for capital; C = exogenous final demand (consumption);D = induced investment. T = time index.This is a system of linear difference equations, since the values of thevariables are related to different periods of time.While consumption is expected to grow at the annual rate (1+m)t.
    30. 30. Updating input output matrices.Methods for updating input-output tables can be categorized in univariate,bivariate, econometric and stochastic proceduresThe basic idea of univariate methods to update input-output tables is to correct thematrix of input coefficients row wise with a diagonal matrix of correction factors.In contrast to univariate methods, which work with corrections of rows only,bivariate models correct rows and columns of one input-output table at the sametime.The RAS procedure was developed by Richard Stone and named after the typicalsequence of matrices. This time the matrix of input coefficients is pre-multipliedwith a diagonal matrix of row factors of correction and post multiplied with adiagonal matrix of column factors of correction. Simple and modified RASprocedures are widely used to update input output tables on the basis of abenchmark table that has been compiled with the help of census and survey data.The basic idea is to adjust in an iterative procedure the matrix for intermediateinputs column and row wise with appropriate multipliers until the given totals forintermediate input requirements are met.The RAS procedure seems to have a sound economic basis with the capability toreflect technological change through the substitution and fabrication effects.However, many economists view the RAS procedure as a purely mathematicalprocedure hardly capable of tracing the complex phenomenon of technologicalchange.
    31. 31. INPUT OUTPUT INTERNATIONAL CONFERENCESThe first international Input Output conference met in Driebergen, Hollandin 1951, it brought together economists interested in the theoretical, thestatistical, and the computational problems of interindustry analysis.A second conference was held between June 27 and July 10, 1954, atVarenna, Italy.A third international conference was held in September 1961 in Geneva.Economists and statisticians from more than 41 different countriesparticipated in this conference. For the first time, representatives of theSoviet Union and of other socialist countries, as well as planners fromunderdeveloped countries, participated in the international input-outputconference.
    32. 32. “Input Output Economics: Empirical Applications in Mexicoand International Experience in the Development of InputOutput Analysis" Dr. Alejandro Díaz-Bautista Catedrático y Profesor Investigador en Economía, Colef Professor of Economics at Colef prepared for “Estado Actual de la Investigación delAnálisis Insumo-Producto en México”, El Colegio de la Frontera Norte,June 14 and 15, 2012, Baja California, Mexico