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Input-Output Models for Impact Analysis:. Suggestions for Practitioners Using RIMS II Multipliers. Rebecca Bess. 65 th Annual AUBER Fall Conference Indianapolis, IN October 8-11, 2011. Outline of Today’s Talk. Input-output models Key assumptions Information required from users

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input output models for impact analysis

Input-Output Models for Impact Analysis:

Suggestions for Practitioners Using RIMS II Multipliers

Rebecca Bess

65th Annual AUBER Fall Conference

Indianapolis, IN

October 8-11, 2011

outline of today s talk
Outline of Today’s Talk
  • Input-output models
  • Key assumptions
  • Information required from users
  • Multiplier selection
  • Common mistakes
i o multipliers
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
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
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

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key assumptions
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
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

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common mistakes
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 contributions

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further suggestions
Further Suggestions
  • Avoid using multipliers to estimate the impacts of:
    • single events taking place over a short period of time
    • an industry’s contribution to the economy, especially one of the economy’s largest industries
    • changes large enough to affect the structure of the economy
thank you
Thank You

Rebecca Bess

RIMS II Section, Regional Product Division

U.S. Bureau of Economic Analysis

Phone: 202-606-5343

E-mail: RIMS@bea.gov

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