WP6 – Progress ReportDeliverables 6.1 & 6.2

Vilém Semerák

CERGE-EI, Charles University, Prague5th meeting Charles University, Prague

25th of November 2008

Outline

• Overview: WP6 – deliverables and progress of work

• Deliverable 6.1

– Methodology of regional IO

– Methodology of linkage coefficients and impact analysis

• Work on deliverables 6.2 and 6.3

– Selection of regions and data requirements

– Early results:

• Linkage coefficients at the aggregate level

• Estimates of regionalized IO for the Czech Republic, linkagecoefficients at the regional level

WP6 - Overview• WP6: Analysis of the Socioeconomic Effects of the Food Supply Chain in

Remote Rural Areas• Objective:

– to assess the food industry’s interaction and integration with the agricultural sector and its contribution on the socioeconomic development.

• Methodology– Input-output analysis at regional level, GE analysis

• Specific objectives:– A “comparable I-O scheme” has to be defined for the three selected regions

and then to construct a hybrid set of regional tables. (T 6.1)– Develop the methodological framework to calculate I-O impact indicators

(linkages) by utilizing the constructed I-O tables. (T 6.2)– Apply the developed methodological framework in the three different rural

regions (in the Czech Republic, Greece, and Germany) in order to examine the importance of agriculture and food sector in the regional economies (T 6.3)

Task Description ParticipantStart

Month

6.1: Definition of a Hybrid Comparable

Regional Input-Output SchemeP1, P6 12

6.2: Construction of Regional I-O Models,

Description of the Structure of the Selected

Rural Areas and Analysis of the Framework

of the Impact Indicators

P1, P6 18

6.3: Application of the Theoretical Framework

to the Selected Regions for the Examination

of the Socioeconomic Importance of the

Food Sector.

P1, P5, P6,

P724

Deliverable 6.1• A Theoretical Framework for the Construction of a Complete Regional I-O

Model – Due: Month 16– Responsible: P1 and P6– Efstratios Loizou– Current status:

• Finished, going through proof-reading and comments• Methodology already provided to partners working on D 6.2

• D6.1 Relates task 6.1: Definition of a Hybrid Comparable Regional Input-Output Scheme– theoretical foundations of regional I-O analysis – definition of a comparable regional I-O scheme (level of aggregation -number

of sectors-; the technology assumption; which year to consider; how to treat households -exogenous or endogenous-)

– The most important food activities for each region should be separate from the food sector (disaggregation is needed).

– Methodological framework of linkage coefficients will be developed.

Deliverable 6.2

• A report presenting the constructed regional I-O tables along with the linkage coefficients and the eliminating process – Due: Month 24– Responsible: P6

• D6.2 Relates task 6.2: Construction of regional I-O models, description of the structure of the selected rural areas and analysis of the framework of the impact indicators.

– Construction of the regional I-O tables employing the GRIT technique – Using the constructed regional tables to describe the economic

structure of the three selected regions – Analysis of the methodological framework of the impact indicators,

such as the I-O multipliers and other linkage coefficients, as well as the “gradually eliminating approach”.

– Identification of the most important sectors by the means of backward and forward linkages.

Deliverable 6.3• A synthetic report analyzing the socioeconomic importance of the food

supply chain in the selected remote rural areas– Due: Month 30– Responsible: P6

• D6.3 Relates task 6.3: Application of the theoretical framework to the selected regions for the examination of the socioeconomic importance of the food sector. – Moreover, the interrelationships between the food sector and all other

sectors of the regional economy will be revealed in order to examine the food sector potentials to drive the development of the rural economies.

– Application of the “gradually eliminating approach” on the food sector in order to assess potential negative impacts in the regional economies, to reveal the sector’s role.

• The exogenization of a sector is a method to examine its importance, it has been applied by Roberts (1994) and Papadas and Dahl (1999)

Deliverable 6.1 - Contents

1. The basics of I-O analysis– Detailed description of the basic principles of I-O analysis, as well

as of some basic features that the regional I-O tables under construction must have in order to present a degree of comparability.

2. The steps of the selected regionalization technique (GRIT) – Various methodologies that appear in the literature for the

construction of regional I-O tables. The Generation of Regional Input-Output Tables (GRIT) technique was proposed to be used for the construction of the regional tables that is why it will be described in detail, step-by-step.

3. The methodology of calculating the basic I-O multipliers– Methodological framework to calculate the various linkages and

multipliers, to be used for the identification of key economic conditions in the specific regions.

Methodology: IO Analysis - Basics

• The basic Leontief Input-Output model is a systematic method that quantifies and records the productive relations among the different sectors of economic activity; through a system of linear equations, one for each sector.

• Since their foundation Input-Output models are extensively used for the examination of the structure of economies at national and regional level and to assess income, employment and output impacts.

Input–Output Analysis at Regional Level

• Regional I-O Methodology

– The relative size of an economic system doesn’t affect the methodological approach of the Input-Output analysis

– It can be applied successfully equal to a regional economic system

– It makes a satisfactory attempt to impress the particularities and the differences of every region

Methodology of Construction of Regional Tables

• Three methodological approaches:• I. Survey Techniques

– In order to construct regional I-O tables, the same procedure is to followed as for the country, that is, to perform a survey in the region.

– Despite their superiority, they are time consuming and costly.

• II. Non-Survey Techniques– Simple Location Quotient (SLQ) – Cross-Industry Location Quotient (CILQ) – The Method of Flegg et al., (FLQ)

• III. Hybrid or Partial Survey Techniques– The RAS Method– The Imports or Exports Only Method – Regression methods – Entropy Methodology – The GRIT Method

Simple Location Quotients

• Task: calculate regional technical coefficients:

• SLQ: relative measure of the size (importance) of thesector on regional level compared to the size(importance) of the same sector on the national level

• Usually based on employment:

• Applied to the selling sector, identical for the wholerow

• Regional coefficients:

Rij

Rij

Nij maa

n

i

Ni

Ni

n

i

Ri

Ri

i

XX

XX

SLQ

1

1

N

ij

N

iji

R

ij aaSLQa ,min

SLQi for Czech Republic, NUTS2, 2000

Based in structure of gross value added

Regionalized Matrix of Technical CoefficientsJihovýchod

Cross Industry Location Quotients

• SLQ – unrealistic assumption that national andregional demand patterns are similar

• CILQ – takes into account the relativeimportance of each sector intermediate sales

• Resulting regional coefficients:

j

i

Nj

Rj

Ni

Ri

ijSLQ

SLQ

XX

XXCILQ

N

ij

N

iji

R

ij aaCILQa ,min

CILQ for Jihovýchod Region, CR, 2000

Based in structure of gross value added

Regionalized Matrix of Technical CoefficientsJihovýchod, 2000, CILQ based

Flegg et al. Approach (FLQ)• Trading coefficients depend on three

variables:

1. The relative size of supplying sector i

2. The relative size of purchasing sector j

3. The relative size of the region

• SLQ takes into account (1) and (3)

• CILQ based on (1) and (2)

• FLQ = alternative that includes all three

ij ijFLQ CILQ where 2

1 1

log 1

n nR Ni i

i i

E E

0 1 0 1

GRIT Method

• Hybrid (partial-survey) technique proposed by Jensen (1979)

• Based on non-survey techniques (location quotients)

• External data from surveys or other secondary sources (superior) can be inserted at various stages of the procedure.

• Computerized: code for Gauss

• Widely used in empirical studies

GRIT Steps in Detail

• 1. Sectoral Aggregation

• 2. Reallocation of International Trade

• 3. Computation of the National Direct Requirements Matrix

• 4. Computation of the Regional Direct Requirements Matrix

• 5. Sectoral Aggregation of the Regional DRM

• 6. Computation of the Complete Regional Input-Output Table

Linkage Coefficients

• Backward and forward linkages– Mostly derived from I-O multipliers

• Effects of changes in final demand– Direct effects

– Indirect effects

– Induced effects

• Multipliers– Type I multiplier = (direct effect + indirect effect)/direct

effect

– Type II multiplier = (direct effect + indirect effect + induced effect)/direct effect

Chenery and Watanabe Linkage Coefficients

• Chenery and Watanabe (1956)

• Backward linkages should be evaluated by sector’s direct requirements for inputs

– Based on direct requirements matrix

1

n

j ij

i

BL a

Rasmussen and Hirschman Backward Linkages

• Based on total requirements matrix

• Describes both direct and indirect increase in the total output

• Output multipliers = sum of the Leontief inverse columns

n

iijj

bOM1

Example: Food Sector in the CRCalculated backward linkages, 2005 SIOT, CPA2

0

1

2

3

4

5

6

Agriculture Fishing Food Industry Max Min

Direct

Total

Example: Food Sector in GermanyCalculated backward linkages, 2005 SIOT

0

0.5

1

1.5

2

2.5

Agriculture Fishing Food Industry Max

Direct

Total

Comparison of the Backward LinkagesAgriculture, Rasmussen and Hirschman Backward Linkages

for Střední Morava in 2000

0

0.5

1

1.5

2

2.5

3

Benchmark: original data SLQ based CILQ based

Comparison of the Backward LinkagesAgriculture, Rasmussen and Hirschman Backward Linkages

for Jihovýchod in 2000

0

0.5

1

1.5

2

2.5

Benchmark: original data SLQ based CILQ based

Other Forms of Multipliers/Elasticities

• Income multipliers

• Employment multiplier

• Input-Output elasticities

Selecting the Region

• “Remote rural region“– Remoteness – border region?

– Lower GDP p.c. than average

– Higher share of agriculture than average

• Suggestions:– Greece: Ipeiros

– CR: Jihovýchod (inst. of Střední Morava)

– Germany:

Czech Republic

Data Requirements for the FOODIMA I-O Model

• Symmetric input-output tables– the transactions matrix including primary inputs and final demand disaggregated as

much as it can be, (to be consisted by as many sectors as it can be). – If possible the sector of agriculture to be disaggregated, not to be only one sector

– Final demand and primary inputs categories should be disaggregated in accordance with I-O sector disaggregation.

– Availability of imports matrix (we must know if the I-O table is in total flows or domestic flows)

• Regional and national sectoral employment following the same SIC with the I-O tables and at the same (or higher) level of disaggregation. Employment is necessary at regional and national level in order to calculate the Location Quotients and the employment multipliers.

• If available, regional and national sectoral output following the same SIC with I-O tables and at the same level (or higher) of disaggregation

• A separate vector of wages and salaries is required (if it is not directly available from primary inputs data).

• Any available data at regional level can be selected in order to improve the regionalization procedure, (e.g regional transactions, the sectoral output, regional exports and imports, …)

References (1)

• Brand S. (1997) On the appropriate use of location quotients in generating regionalinput-output tables: a comment, Regional Studies 31, 79-94.

• Flegg T. A., and Webber C.D. (2000), Regional Size, Regional Specialization and theFLQ Formula, Regional Studies, 34 (6) pages 563-69.

• Flegg T. A., Webber C.D. (1996a), “Using location quotients to estimate regionalinput-output coefficients and multipliers”, Local Econ. Quart., 4, pages 58-86.

• Flegg T. A., Webber C.D. (1996b), “The FLQ formula for generating regional input-output tables: an application and reformation”, Working Papers in Economics, 17, University of the West of England, Bristol.

• Flegg T. A., Webber C.D. (1997), “On the Appropriate Use of Location Quotients in Generating Regional Input-Output Tables: Reply”, Regional Studies, 31, pages 795-805.

• Flegg, T. A., C.D. Webber and M. V. Elliot (1995). On the appropriate use of locationquotients in generating regional input-output tables. Regional Studies, 29: 547-561.

• Jensen, R. C., T. D. Mandeville and N. D. Karunaratne (1979). Regional economicplanning: Generation of regional input-output analysis. London: Croom Helm.

• Mattas, K., C. Fotopoulos, V. Tzouvelekas, Loizou, S. and K. Polymeros (1999). TheDynamics of Crop Sectors in Regional Development: The Case of Tobacco. International Advances in Economic Research, 1999, 5(2) pp. 255-268.

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Approach. In: Ferretti F. (eds) Leaves and cigarettes: Modelling the tobacco industry: with applications to Italy and Greece. Franco Angeli.

• Mattas K., Loizou S., Tzouvelekas V., Tsakiri M. and Bonfiglio A. (2006). Deriving regional I-O tables andmultipliers. In: Bonfiglio A., Esposti R. and Sotte F. (eds) Rural Balkans and EU Integration: An Input-OutputApproach. Franco Angeli.

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Output Elasticities. Applied Economics, 23: 247-254. • Midmore, P. and L. Harrison-Mayfield (1996). Rural economic modeling: An input-output approach.

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Cahiers d’Economie et Sociologie Rurales, 42-43, pp. 8-31. • Midmore P., Munday M. and Roberts A. (2006). Assessing Industry Linkages Using Regional Input–Output

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Englewood Cliffs, New Jersey.• Papadas C. and Dahl D. (1999). Supply-Driven Input-Output Multipliers. Journal of Agricultural Economics, 50

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Journal of Agricultural Economics, 45, 90-101. • Tzouvelekas, V. and K. Mattas (1999). Tourism and agro-food as a growth stimulus to a rural economy: The

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