““International Input Output Analysis and Sustainable International Input Output Analysis and Sustainable Regional DevelopmentRegional Development""

Dr. Alejandro Díaz-BautistaDr. Alejandro Díaz-BautistaProfesor Investigador en Economía, Profesor Investigador en Economía, ColefColef

Professor of International Economics Professor of International Economics

adiazbau@gmail.com

http://www.linkedin.com/pub/alejandro-diaz-bautista/6/619/691

Presentation prepared for the first conference of Input-Output Analysis, Organized by the Universidad Autónoma de Yucatán, México y Asociación Mexicana Matriz de Insumo Producto, March 14 -15, 2013, Mérida, Yucatán, Mexico.

Input Output Input Output EconomicsEconomics

Input-output economics refers to the study of the effects Input-output economics refers to the study of the effects that different sectors have on the economy as a whole, for that different sectors have on the economy as a whole, for a particular nation or region. This type of economic a particular nation or region. This type of economic analysis was originally developed by Wassily Leontief, analysis was originally developed by Wassily Leontief, who later won the Nobel Memorial Prize in Economic who later won the Nobel Memorial Prize in Economic Sciences for his work on this model. Sciences for his work on this model.

Input-output analysis allows the various relationships Input-output analysis allows the various relationships within an economic system to be analyzed as a whole, within an economic system to be analyzed as a whole, rather than individual components. The present study rather than individual components. The present study shows some of the empirical applications in Mexico and shows some of the empirical applications in Mexico and the international experience in the development of Input the international experience in the development of Input Output Matrix and analysis.Output Matrix and analysis.

Input Output EconomicsInput Output EconomicsAn understanding of the economy as consisting of linked An understanding of the economy as consisting of linked sectors goes back to the French economist François Quesnay, sectors goes back to the French economist François Quesnay, but was developed in general form by Léon Walras in 1874. but was developed in general form by Léon Walras in 1874. Leontief's contribution was to state the model in such a way as Leontief's contribution was to state the model in such a way as to make computation feasible.to make computation feasible.

With his first publications from 1936 to 1941 Leontief founded With his first publications from 1936 to 1941 Leontief founded the input output analysis. Dantzig developed in 1951 the simplex the input output analysis. Dantzig developed in 1951 the simplex algorithm to solve linear optimization problems. His simplex algorithm to solve linear optimization problems. His simplex algorithm is still the basic foundation of linear programming and algorithm is still the basic foundation of linear programming and operations research. While Dorfman, Samuelson and Solow operations research. While Dorfman, Samuelson and Solow discussed in 1958 the close relationship between input-output discussed in 1958 the close relationship between input-output analysis and linear programminganalysis and linear programming

The input output equation model system The input output equation model system is the following: is the following:

Z = B(I - A)-1Y is the common equation system of input-output Z = B(I - A)-1Y is the common equation system of input-output analysis.analysis.

wherewhere

B = matrix of input coefficients for specific variable in economic B = matrix of input coefficients for specific variable in economic analysis (intermediates, labor, capital, energy and emissions).analysis (intermediates, labor, capital, energy and emissions).

I = unit matrix.I = unit matrix.

A = matrix of input coefficients for intermediates.A = matrix of input coefficients for intermediates.

Y = diagonal matrix for final demand.Y = diagonal matrix for final demand.

Z = matrix with results for direct and indirect requirements Z = matrix with results for direct and indirect requirements (intermediates, labor, capital, energy and emissions).(intermediates, labor, capital, energy and emissions).

Matrix B includes the input coefficients of the variable under Matrix B includes the input coefficients of the variable under investigation (intermediates, labor, capital, energy, emissions). investigation (intermediates, labor, capital, energy, emissions).

The diagonal matrix Y denotes exogenous final demand for goods The diagonal matrix Y denotes exogenous final demand for goods and services. and services.

The matrix Z incorporates the results for the direct and indirect The matrix Z incorporates the results for the direct and indirect requirements (intermediates, labor, capital, energy) or joint products requirements (intermediates, labor, capital, energy) or joint products (emissions) for the produced goods and services. (emissions) for the produced goods and services.

The Model of Dynamic Input-Output Analysis.The Model of Dynamic Input-Output Analysis.

Standard models of dynamic input output analysis consider that some Standard models of dynamic input output analysis consider that some inputs contribute to the production process but are not immediately inputs contribute to the production process but are not immediately used up during production. In other words, a sector has a certain used up during production. In other words, a sector has a certain capital stock of machinery, buildings and transport equipment that is capital stock of machinery, buildings and transport equipment that is also necessary for production. In consequence, investments are also necessary for production. In consequence, investments are required for replacements and capacity additions.required for replacements and capacity additions.

The dynamic input-output models are designed in line with the The dynamic input-output models are designed in line with the multiplier-accelerator analysis of macroeconomic theory. According to multiplier-accelerator analysis of macroeconomic theory. According to this theory it is expected that investment is induced if final demand is this theory it is expected that investment is induced if final demand is expected to grow.expected to grow.

The Model of Dynamic Input-Output Analysis.The Model of Dynamic Input-Output Analysis.

We assume that induced investment is a function of expected growth. We assume that induced investment is a function of expected growth. The model equations are:The model equations are:

Xt = AXt + Ct + DtXt = AXt + Ct + Dt

Dt = BXt+1 - BXtDt = BXt+1 - BXt

Xt = AXt + Ct + BXt+1 - BXtXt = AXt + Ct + BXt+1 - BXt

(I – A + B)Xt = Ct + BXt+1(I – A + B)Xt = Ct + BXt+1

The production of period t is defined:The production of period t is defined:

Xt = (I – A + B)-1 (Ct + BXt+1)Xt = (I – A + B)-1 (Ct + BXt+1)

while the production of period t+1 is determined by:while the production of period t+1 is determined by:

Xt+1 =B-1[(I – A + B)Xt - Ct]Xt+1 =B-1[(I – A + B)Xt - Ct]X = output. Y = final demand. I = unit matrix ; A = input coefficients for X = output. Y = final demand. I = unit matrix ; A = input coefficients for intermediates. (I-A)-1 = matrix of cumulative input coefficients (inverse). intermediates. (I-A)-1 = matrix of cumulative input coefficients (inverse).

B = input coefficients for capital; C = exogenous final demand (consumption); B = input coefficients for capital; C = exogenous final demand (consumption); D = induced investment. T = time index.D = induced investment. T = time index.

This is a system of linear difference equations, since the values of the This is a system of linear difference equations, since the values of the variables are related to different periods of time. variables are related to different periods of time.

While consumption is expected to grow at the annual rate (1+m)t. While consumption is expected to grow at the annual rate (1+m)t.

Updating input output matrices.Updating input output matrices.Methods for updating input-output tables can be categorized in univariate, Methods for updating input-output tables can be categorized in univariate, bivariate, econometric and stochastic proceduresbivariate, econometric and stochastic procedures

The basic idea of univariate methods to update input-output tables is to correct the The basic idea of univariate methods to update input-output tables is to correct the matrix of input coefficients row wise with a diagonal matrix of correction factors.matrix of input coefficients row wise with a diagonal matrix of correction factors.

In contrast to univariate methods, which work with corrections of rows only, 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 same bivariate models correct rows and columns of one input-output table at the same time. time.

The RAS procedure was developed by Richard Stone and named after the typical The RAS procedure was developed by Richard Stone and named after the typical sequence of matrices. This time the matrix of input coefficients is pre-multiplied sequence of matrices. This time the matrix of input coefficients is pre-multiplied with a diagonal matrix of row factors of correction and post multiplied with a with a diagonal matrix of row factors of correction and post multiplied with a diagonal matrix of column factors of correction. Simple and modified RAS diagonal matrix of column factors of correction. Simple and modified RAS procedures are widely used to update input output tables on the basis of a procedures are widely used to update input output tables on the basis of a benchmark table that has been compiled with the help of census and survey data. benchmark 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 intermediate The basic idea is to adjust in an iterative procedure the matrix for intermediate inputs column and row wise with appropriate multipliers until the given totals for inputs column and row wise with appropriate multipliers until the given totals for intermediate input requirements are met. intermediate input requirements are met.

The RAS procedure seems to have a sound economic basis with the capability to The RAS procedure seems to have a sound economic basis with the capability to reflect technological change through the substitution and fabrication effects. reflect technological change through the substitution and fabrication effects. However, many economists view the RAS procedure as a purely mathematical However, many economists view the RAS procedure as a purely mathematical procedure hardly capable of tracing the complex phenomenon of technological procedure hardly capable of tracing the complex phenomenon of technological change.change.

International Input output International Input output AnalysesAnalyses

Input output analyses are widely used in highly Input output analyses are widely used in highly industrialized societies and developing countries. In the industrialized societies and developing countries. In the United States, the Department of Commerce, for example, United States, the Department of Commerce, for example, has generated several input-output matrices, including the has generated several input-output matrices, including the Bench-Mark Tables. In Europe, countries as Denmark, Bench-Mark Tables. In Europe, countries as Denmark, France, Germany, the Netherlands, Norway, Spain and France, Germany, the Netherlands, Norway, Spain and the United Kingdom, estimate input-output matrices every the United Kingdom, estimate input-output matrices every five years. In Latin America input-output matrices are five years. In Latin America input-output matrices are estimated every few years in Argentina, Colombia, Costa estimated every few years in Argentina, Colombia, Costa Rica, Cuba, Mexico and Puerto Rico. Other countries with Rica, Cuba, Mexico and Puerto Rico. Other countries with a long tradition of producing this analytical instrument are a long tradition of producing this analytical instrument are India, Japan and Russia.India, Japan and Russia.

United States Input United States Input Output AnalysisOutput Analysis

However, the first government agency to undertake the However, the first government agency to undertake the construction of a full-scale national input-output table was construction of a full-scale national input-output table was the Bureau of Labor Statistics of the Department of Labor the Bureau of Labor Statistics of the Department of Labor in the U.S. This effort resulted in the publication of a 50-in the U.S. This effort resulted in the publication of a 50-sector table of interindustry relations in the United States sector table of interindustry relations in the United States and of a much more detailed 200-sector table with finer and of a much more detailed 200-sector table with finer industrial and sectoral classifications. To construct this industrial and sectoral classifications. To construct this table, a separate Division of Interindustry Economics had table, a separate Division of Interindustry Economics had been established in the Bureau of Labor Statistics. An been established in the Bureau of Labor Statistics. An important result of this early work in input-output analysis important result of this early work in input-output analysis was a projection of the U.S. economy to 1950.was a projection of the U.S. economy to 1950.

United States Input United States Input Output AnalysisOutput Analysis

In the United States the annual input-output (I-O) In the United States the annual input-output (I-O) accounts provide a time series of detailed, consistent accounts provide a time series of detailed, consistent information on the flow of goods and services that make information on the flow of goods and services that make up the production processes of industries. For each year up the production processes of industries. For each year beginning with 1998, the accounts show how industries beginning with 1998, the accounts show how industries interact as they provide inputs to, and use outputs from, interact as they provide inputs to, and use outputs from, each other to produce GDP. The annual I-O accounts can each other to produce GDP. The annual I-O accounts can be used to study changes in structure of the U.S. be used to study changes in structure of the U.S. economy and the relative importance of an industry to all economy and the relative importance of an industry to all other industries. The accounts are an important tool for other industries. The accounts are an important tool for analysis because they show the production functions of analysis because they show the production functions of individual industries and the interactions among producers individual industries and the interactions among producers and between producers and final users in the economy. and between producers and final users in the economy.

United States Input United States Input Output AnalysisOutput Analysis

The Industry Economic Accounts (IEA) prepares The Industry Economic Accounts (IEA) prepares benchmark input-output (I-O) accounts in the U.S. for benchmark input-output (I-O) accounts in the U.S. for years ending in 2 and 7, which are based on detailed years ending in 2 and 7, which are based on detailed data from the quinquennial economic censuses that data from the quinquennial economic censuses that are conducted by the Bureau of the Census. The are conducted by the Bureau of the Census. The benchmark accounts show how industries interact at benchmark accounts show how industries interact at the detailed level; specifically, they show how the detailed level; specifically, they show how approximately 500 industries provide input to, and use approximately 500 industries provide input to, and use output from, each other to produce gross domestic output from, each other to produce gross domestic product. These accounts provide detailed information product. These accounts provide detailed information on the flows of the goods and services that make up on the flows of the goods and services that make up the production processes of industries. the production processes of industries.

The 2002 benchmark I-O accounts are presented in The 2002 benchmark I-O accounts are presented in the standard make and use tables and several the standard make and use tables and several supplementary tables. supplementary tables.

Canada’s Input Output Canada’s Input Output AnalysisAnalysis

In Canada, input-output tables are published on an annual In Canada, input-output tables are published on an annual basis. The publications begin in 1961 for the national basis. The publications begin in 1961 for the national input-output tables, and the provincial input-output tables input-output tables, and the provincial input-output tables are available from 1997. Input-output tables are available are available from 1997. Input-output tables are available for different levels of aggregation. Statistics Canada for different levels of aggregation. Statistics Canada operates national and interprovincial input-output models. operates national and interprovincial input-output models. The models are open and they calculate the direct and The models are open and they calculate the direct and indirect effects only. indirect effects only.

Statistics Canada calculates national and provincial Statistics Canada calculates national and provincial multipliers for all industries at all levels of aggregation. multipliers for all industries at all levels of aggregation. Multipliers for special impact can be calculated using the Multipliers for special impact can be calculated using the National and Interprovincial input-output models.National and Interprovincial input-output models.

European Input Output European Input Output TableTable

While the European Input Output Table can be used to evaluate the While the European Input Output Table can be used to evaluate the impact of different policies on macroeconomic variables such as impact of different policies on macroeconomic variables such as gross domestic product, employment, consumption, productivity, gross domestic product, employment, consumption, productivity, competitiveness, etc, as well as on the environment. Moreover, input competitiveness, etc, as well as on the environment. Moreover, input output techniques allow quantitative impact assessment of policy output techniques allow quantitative impact assessment of policy actions either for regional, national or international levels. actions either for regional, national or international levels.

The Institute for Prospective Technological Studies (IPTS) of the The Institute for Prospective Technological Studies (IPTS) of the European Commission's DG Joint Research Centre is developing European Commission's DG Joint Research Centre is developing input-output based models as a tool to support the development of input-output based models as a tool to support the development of European policies. The latest progress is the elaboration of a European policies. The latest progress is the elaboration of a complete homogeneous set of 27 symmetric input-output tables at complete homogeneous set of 27 symmetric input-output tables at individual Member State level and an aggregate EU 27 table.individual Member State level and an aggregate EU 27 table.

Input-Output Analysis in MexicoInput-Output Analysis in MexicoMexico has several input-output matrices referring to the Mexico has several input-output matrices referring to the years 1950, 1960, 1970, 1975, 1978 and 1980. Also, for this years 1950, 1960, 1970, 1975, 1978 and 1980. Also, for this last year, Mexico has a matrix for the agriculture and forestry last year, Mexico has a matrix for the agriculture and forestry sector. In regards to the matrices of 1950 and 1960, they sector. In regards to the matrices of 1950 and 1960, they were developed by the Bank of Mexico and were allowed to were developed by the Bank of Mexico and were allowed to integrate the first set of consolidated accounts of the country, integrate the first set of consolidated accounts of the country, while the following matrices were made by the Department of while the following matrices were made by the Department of Statistics (DGE) of National Institute of Statistics, Geography Statistics (DGE) of National Institute of Statistics, Geography and Informatics (INEGI). and Informatics (INEGI).

The matrices for 1975 and 1978 were part of an upgrade of The matrices for 1975 and 1978 were part of an upgrade of 1970, while the matrix of 1980 introduced innovative features 1970, while the matrix of 1980 introduced innovative features in relation to the preceding matrix.in relation to the preceding matrix.

In 2003, Inegi worked on the National MIP.In 2003, Inegi worked on the National MIP.

The most recent work on the national matrix was conducted The most recent work on the national matrix was conducted around 2008. around 2008.

Applied Input-Output Analysis for Applied Input-Output Analysis for Mexico’s Energy SectorMexico’s Energy Sector

Proposed Applied Analysis for Mexico’s Proposed Applied Analysis for Mexico’s National Energy SectorNational Energy Sector

Proposed Applied Analysis for Mexico’s Proposed Applied Analysis for Mexico’s National Energy SectorNational Energy Sector

Mexico’s Energy SectorMexico’s Energy SectorThe National Energy Strategy 2013-27 was approved by majority vote The National Energy Strategy 2013-27 was approved by majority vote in the Senate during March of 2013.in the Senate during March of 2013.

The strategy outlines plans to deal with the country’s growing energy The strategy outlines plans to deal with the country’s growing energy needs in an efficient, safe and sustainable way.needs in an efficient, safe and sustainable way.

Mexico’s energy policy looks for opportunities in energy conservation; Mexico’s energy policy looks for opportunities in energy conservation; expands energy services to regions with fewer resources; and seeks to expands energy services to regions with fewer resources; and seeks to minimize the health and environmental impacts that result from the minimize the health and environmental impacts that result from the generation and consumption of energy, both regionally and globally.generation and consumption of energy, both regionally and globally.

The strategy promotes sharing the benefits of energy use with all of The strategy promotes sharing the benefits of energy use with all of society, while exploring the sector’s long-term sustainability and ways society, while exploring the sector’s long-term sustainability and ways to mitigate greenhouse gas emissions.to mitigate greenhouse gas emissions.

The upcoming energy reform shows a clear goal of expanding foreign The upcoming energy reform shows a clear goal of expanding foreign direct investment in the energy sector.direct investment in the energy sector.

ConclusionsConclusionsOne of the key conclusions of the use of this type of modeling, which One of the key conclusions of the use of this type of modeling, which integrates economic, energy and environmental interactions in an integrates economic, energy and environmental interactions in an input-output framework, is that it allows the analysis of how energy, input-output framework, is that it allows the analysis of how energy, and therefore emissions, are related to industrial production, and and therefore emissions, are related to industrial production, and ultimately to final demand, making it a tool particularly important for ultimately to final demand, making it a tool particularly important for policy analysis purposes.policy analysis purposes.

In addition to studying the structure of national economies, input In addition to studying the structure of national economies, input output economics has been used to study regional economies within output economics has been used to study regional economies within a nation, and as a tool for national and regional economic planning. a nation, and as a tool for national and regional economic planning. Indeed a main use of input-output analysis is for measuring the Indeed a main use of input-output analysis is for measuring the economic impacts of events and projects as well as public economic impacts of events and projects as well as public investments or economic programs. Input output models are also investments or economic programs. Input output models are also used to identify economically related industry clusters and key used to identify economically related industry clusters and key industries that are most likely to enhance the internal structure of a industries that are most likely to enhance the internal structure of a specified economy. specified economy.

““International Input Output Analysis and Sustainable International Input Output Analysis and Sustainable Regional DevelopmentRegional Development""

Dr. Alejandro Díaz-BautistaDr. Alejandro Díaz-BautistaProfesor Investigador en Economía, Profesor Investigador en Economía, ColefColef

Professor of International Economics Professor of International Economics

adiazbau@gmail.com

http://www.linkedin.com/pub/alejandro-diaz-bautista/6/619/691

Presentation prepared for the first conference of Input-Output Analysis, Organized by the Universidad Autónoma de Yucatán, México y Asociación Mexicana Matriz de Insumo Producto, March 14 -15, 2013, Mérida, Yucatán, Mexico.