Input-Output Models for Impact Analysis:

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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
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Outline of Todays Talk

• Input-output models
• Key assumptions
• Information required from users
• Multiplier selection
• Common mistakes

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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

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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)

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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 S Value added S Final use GDP ? Total
  gross output

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Key Assumptions

• Backward linkages
• Fixed production patterns
• Industry homogeneity
• Fixed prices and no supply constraints
• Local supply conditions
• No regional feedback effects

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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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Multiplier Selection
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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

• Avoid using multipliers to estimate the impacts
  of
• single events taking place over a short period of
  time
• an industrys contribution to the economy,
  especially one of the economys largest
  industries
• changes large enough to affect the structure of
  the economy

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Thank You

• Rebecca Bess
• RIMS II Section, Regional Product Division
• U.S. Bureau of Economic Analysis
• Phone [phone]
• E-mail RIMS_at_bea.gov

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