What Is Input-Output Analysis?

Input-output analysis (I-O) is a form of macroeconomic analysis based on the interdependencies between different economic sectors or industries.

This method is commonly used for estimating the impacts of positive or negative economic shocks and analyzing the ripple effects throughout an economy. I-O economic analysis was originally developed by 澳洲幸运5官方开奖结果体彩网:Wassily Leontief, who later won the 澳洲幸运5官方开奖结果体彩网:Nobel Memorial Prize in Economic Scie🎶nces for his work in this area.

Understanding Input-Output Analysis

The foundation of I-O analysis involves input-output tables. Such tables include a series of rows and columns of data that quantify the 澳洲幸运5官方开奖结果体彩网:supply chain for all sectors of an economy. Industries are listed in the headers of each row and each column. The data in each column corresponds to the 澳洲幸运5官方开奖结果体彩网:level of inputs used in that industry's production function.

For example, the column for auto manufacturing shows the resources required for building automobiles (e.g., the amount of ste♛el, aluminum, plastic, electronics, and so on). I-O models typically include separate tables showing the amount of labor required per dollar unit of investment or production.

While input-output analysis is not commonly utilized by 澳洲幸运5官方开奖结果体彩网:neoclassical economics or by policy advisers in the West, it has been employed in Marxist economic analysis of coordinated economies that rely on a 澳洲幸运5官方开奖结果体彩网:central planner.

3 Types of Economic Impact

I-O models estimate three types of impact: direct, indirect, and induced. These terms are another way of referring to initial, secondary, and tertiary impacts that ripple throughout the economy when a change is made to a given input level. By using I-O models, 澳洲幸运5官方开奖结果体彩网:economists can estimate the change in output across industries due to a change in inputs in one o🍰r more specific industꩵries.

• The direct impact of an economic shock is an initial change in expenditures. For example, building a bridge would require spending on cement, steel, construction equipment, labor, and other inputs.
• The indirect, or secondary, impact would be due to the suppliers of the inputs hiring workers to meet demand.
• The induced, or tertiary, impact would result from the workers of suppliers purchasing more goods and services for 澳洲幸运5官方开奖结果体彩网:personal consumption. This analysis can also be run in reverse, seeing what effects on inputs were likely the cause of observed changes in outputs.

Example of Input-Output Analysis

Here's an example of how I-O analysis works. A local government wants to build a new bridge and needs to justify the cost of the investment. To do so, it hires an economist to conduct an I-O study.

The economist tal🧸ks to engineers and construction companies to estimate how much the bridge will cost, the supplies needed, and how many workers will be hired by the construction company.

The economist converts this information into dollar figures and runs numbers through an I-O model, which produces the three levels of impacts. The direct impact is simply the original numbers put into the model, for example, the value of the 澳洲幸运5官方开奖结果体彩网:raw inputs (cement, steel, etc.).

The indirect impact is the jobs created by the supplying compan💧ies, so cement and steel companies. These companies need to hire ꦜworkers to complete the project. They either have the funds to do so or have to borrow the money to do so, which would have another impact on banks.

The induced impact is the amount of money that the new workers spend on goods and services for themselves and their families. This includes basics such as food and clothing, but now that they have more 澳洲幸运5官方开奖结果体彩网:disposable income, it also relates to ไgoods and services for enjoyment.

The I-O analysis studies the ripple effects on various sectors of the economy caused by the local government wanting to build a new bridge. The bridge may require certain costs from the government, utilizing taxes, but the I-🐼O analysis will show the benefits the project generates by hiring companies that h🔯ire workers that spend in the economy, helping it to grow.

The Bottom Line

Input-output analysis is a type of analysis that measures ripple effects and interdependence across different sectors of the economy. It's often used in the context of central economic planning. Impacts measured by input-output analysis include direct, indirect, and induced impacts.