Rethinking Input-Output Analysis. A Spatial Perspective

What is it about?

This book primarily aims at upper level Bachelor and Master students, but is also helpful for practitioners in research and consulting firms and agencies. It showcases the social, economic and environmental importance of the relations between industries in the same and in different regions and countries, and learns how to model these relations by means of regional, interregional and international IO models. It also shows how to extend the basic IO models with endogenous household expenditures. Moreover, it learns the reader how to use the modern IO tables called supply-use tables (SUTs), which explicitly distinguish the products used and sold, and Social Accounting Matrices (SAMs) that additionally show the spatial and governmental redistribution of value added. Besides the standard demand-driven IO quantity model, this book also carefully lays out the economic assumptions of its supply-driven mirror image, indicates its extremely limited usefulness, and explains that its little known, accompanying revenue-pull IO price model is almost as useful as the much better known cost-push IO price model that accompanies the standard IO quantity model. After the mainly theoretical first chapters, the final chapters critically discuss three well known applications of the IO model, namely (1) economic impact analysis of negative supply shocks caused by, for example, natural and man-made disasters, (2) regional and interregional forward and backward linkage analysis, better known as key sector analysis, and (3) structural decomposition analysis of regional, national and interregional economic growth. In all three cases, the standard IO approach is shown along with its problematic implications, such as producing misleadingly high multipliers in the first case and presenting policy makers with only half of the truth in the other two cases. Of course, the necessary additions to and changes in the standard approach are presented as well.

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Why is it important?

This book stands out with its emphasis on the behavioural foundations of the two IO quantity and the two IO price models, and the plausibility of the causal mechanisms implied by the mathematics of the base models. This leads to a far more critical evaluation of the usefulness of IO analysis than found in standard textbooks. This book thus provides a better understanding of the foundations, the power, and the limitations of input-output analysis.