SESSION 1

Input output table and SAM

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Table of Contents

Input-Output (IO) Tables: Structure and Main Utilization………………...……………………….....…3

Introduction……………………....………………………………………………………....4
The input-output model………………………………………………..............................…..9
SAM: Structure and Main Utilization………………………………………………………………….15
The social accounting matrix……………...……………………………………………....16
Structure of a SAM………………..……………………………………………….....…....17
The social accounting matrix………………...…………………………………………....18
The SAM multipliers…………………………………………………………………...….19

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A - Input-Output (IO) Tables:
Structure and Main Utilization

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 Introduction (1)

• Agriculture is a major sector of most developing countries

• Agriculture policies affect all the other sectors through its effects on
agricultural output, input demand, employment and income
generation.

• Conversely, changes in other sectors may affect production,

employment and income distribution in agriculture

The analysis of this type of interaction among sectors and institutions

requires economy wide frameworks.
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 Introduction (2)

The basis of such analysis must be consistent and complete data set
on all transactions among sectors and institutions:

- Consistent: for every income there should be a corresponding

outlay or expenditure

- Complete: Both the receiver and the sender of any transaction

must be identified

The SAM is an efficient framework to organize

economic data in such a way

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 Introduction (3)
• Analysis of the interactions among sectors is a key element in the
debate over the proper role of agriculture and other sectors in the
development process.

• The prevailing view (50’s) was that development should be based on

industrialization because:

- Industry is an active sector capable of pulling the whole

economy
- The agricultural sector is passive and unable to lead the
economy to the desired development objectives.

• The choice of the strategic sectors in which to invest is based on

their capacity to generate forward linkages (encourage sectors
requiring their production as input) or backward linkages (encourage
sectors supplying inputs to this sector) 6
 Introduction (4)
• The measure of these linkages is done from the input-output
matrix.

• Peasant agriculture is short on linkages effects:

- As primary production, it has few backward linkages
- As producer of final commodities, it has low forward linkages

This development strategy based on linkage effects led to the

neglect of agriculture.

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 Introduction (5)

• Exhaustion of this industrialization strategy led in the 70’s and 80’s to

a complete reversal in the conception of the role of agriculture in
development which is due mainly to:

The extension of the concept of linkage to include income and final

consumption linkages. The agricultural sector was recognized as an
important source of household incomes, the expenditure of which
can induce industrialization under the pull of effective demand.

• Technically, extension of the concept of linkage to include income

and final consumption effects was based on extension of the input-
output matrix to the SAM.

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 The input-output model (1)

• The input-output table presents in a synthetic way the production and

exploitation accounts (obtained from national accounting) and realizes
the equilibrium between total resources and total demand of goods
and services.

• It’s reduced to a table with a double entries which can be read in

rows or in columns.

• To simplify the exposition of the model, commodities and activities

have been aggregated

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 The input-output model (2)
Sectors (j)
1 …………………………n
Final demand Total demand

Sectors (i) 1 P1X11 ………. P1X1n P1F1 P1X1

.. .. .. .. ..
.. .. .. .. ..
. . . . .
n PnXn1 ……….. PnXnn PnFn PnXn

Value added 1 w1L11 w1L1n

Labor (k) .. .. ..
.. .. ..
. . .
s wsLs1 wsLsn

Other Π1 Πn

Taxes T1 Tn
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Total supply P1X1 PnXn
 The input-output model (3)
• The input-output tables are often used for assessing the impact of a change in the
final demand of a given sector on all sectors of the economy. The technique used is
attributed to Vassily Leontief and is known as the Leontief model.

• The basic idea of the model is that the amount of sector i’s output required for the
production of sector j’s output Xij is assumed to be proportional to sector j’s output
Xj.

• If aij is such input-output coefficient, then:

(1) Xij = aij.Xj, i,j = 1…..,n
The equilibrium between total supply and total demand for each sector is written:
n
(2) X i   X ij  Fi
j 1

Substituting (1) into equation (2) yields:

n
(3) X i   aij . X j  Fi , i  1......, n.
j 1
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 The input-output model (4)
This relationship between final demand and production also holds in changes:
n
(4) Xi   aij. Xj  Fi
j 1

• If the final demand in a given sector i increases by ΔFi , initially production

increases by the same amount ΔXi1 = ΔFi.

• This increase in production raises the intermediate demand for all sectors,
including i itself, by Δ Xj2 = Σ aji Δ Xi1.

• To produce these intermediate inputs, however, more intermediate inputs are

needed and there is a third round of effects Δ Xj3 = Σ aji Δ Xi2

• This leads to more and more effects and several rounds occur and the increase of
output becomes smaller and smaller such that their total always has a limit. To
calculate this limit, we use the matrix form:
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 The input-output model (5)

X = AX + F (I-A)X = F X= (I-A)-1F and

ΔX = (I –A)-1 Δ F

• (I –A)-1 is a multiplier which can be used to calculate overall changes in sectoral

outputs which result from changes in final demand.

• Once the change in X is known, changes in primary-input requirements can be

similarly calculated:

Assuming that the amount of labor category k needed for the production of one
unit of product j, bkj, is constant, the total amount of labor k required is L = BX

L is the vector of labor requirements, Lk, k = 1,…s and B is the matrix of bkj’s

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 The input-output model (6)
Interpretation of the Leontief model

• The crucial assumption is that sectoral production is completely demand driven

which means:
- The production capacity is not fully used and that it can meet any increase in
the demand
- The increase in the demand will not increase the output price

• Because of these strong assumptions, input-output models are more useful as

guidelines to potential induced linkage effects in a growing economy, than as
predictive models.

• The underlying production function assumes constant returns to scale and no

substitution among the different inputs.

Intermediate inputs can be disaggregated into domestic and imported goods. The
multipliers can thus represent more closely the multiplier effect on the domestic
economy
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B - SAM: Structure and Main
Utilization

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 The social accounting matrix

• A SAM is a square matrix in which each transactor or account has its own row and
column. The payments (expenditures) are listed in columns and the receipts in
rows.

• As the input-output table represents only the transactions between the activities
accounts, it gives only a partial representation of the whole economic circuit and
don’t take into account the transfers which occur between all the economic agents.

• A SAM overcomes this problem by the representation of all the monetary

transactions in an economy during one year.

• A SAM contains six accounts: the activities, commodities, and factors (labor and
capital) accounts, institutions accounts which are generally divided into households,
firms and government, the capital account and the rest of the world account.

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 Structure of a SAM
Activities Commod Factors Institutions Capital Rest of Total
account World

Activities Domestic sales Export Exports Prod

subsidies

Commod Intermediate Hh and gov Investment Dom

demand cons demand

Factors Wages and Factor GNP at

rents incomes factor
from cost
abroad
Institution Indirect taxes Tariff and Lab income, Transfers Transfers Instituti
indirect taxes Dist profit and income
undist profit
Capital Hh, firm and Capital Total
Account gov savings transfers savings

Rest of Imports Factor Current Imports

world payments transfers
abroad
Total Production Domestic supply Factor outlay Institution Tot Foreign
expenditure investment exchange
earnings
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 The social accounting matrix
• There is not a unique way of disaggregating and organizing data in a SAM. The
number of accounts in each category depends on the objective of the study:

- We can disaggregate the household accounts into different socioeconomic

classes if the study is focused on distribution effects.
- If agriculture is of interest, it has to be broken down into several activities

• SAMs also vary in the way transactions are recorded:

Remittances can be introduced as receipts for the labor factor account or as

transfer for households from the rest of the world.

• The most common use of SAMs is at the national level. However, they have also
been built for regional economies and for villages.

• Finally all SAMs must respect the same logic of complete and consistent accounting.
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 The SAM Multipliers (1)

• The equilibrium between the total receipts and total expenditures for each account
allows the representation of the whole economy in a linear form similar to what
has been presented in the case of the input-output model.

• Extension of the input output model to a SAM framework is performed by

partitioning the accounts into endogenous and exogenous accounts and assuming
that the column coefficients of the endogenous accounts are all constant.

• Endogenous accounts are those for which changes in the level of expenditure
directly follow any change in income.

• Exogenous accounts are those for which we assume that the expenditures are set
independently of income.

• The standard practice is to choose for the exogenous accounts one or more
among: the government, capital and rest of the world account according to the
objectives of the study

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 The SAM Multipliers (2)

Endogenous Sum of Total

accounts (n) exogenous
accounts (1)
Endogenous M.X F X
accounts (n)
Exogenous B.X L
accounts (m)
Total X

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 The SAM Multipliers (3)

• The SAM multipliers can be derived in a similar way as before:

M X + F= X F=X–MX ΔX= (I – M)-1 ΔF

ΔL = B ΔX

With
M: the square matrix (n×n) of the endogenous accounts
X: the vector of total income or expenditure of the endogenous accounts
F: the vector sum of the expenditures of the exogenous accounts
L: the column vector of the income of the exogenous accounts
B: the rectangular matrix (m×n) of the coefficients with exogenous accounts as
rows and endogenous accounts as columns
ΔF the vector of shocks
ΔX the vector of impacts
ΔL the leakages

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 The SAM Multipliers (4)

• A shock or injection is given by a change in elements of the exogenous accounts

and multipliers like their input output analogues, are completely demand driven.

• The coefficients in the rows of the exogenous accounts provide the “leakages”: the
induced demand for imports, the induced government revenues, and the induced
savings.

• The obtained results are not independent of the choice of the exogenous accounts.

• The range of shocks that can be studied with a SAM model is directly derived from
the choice of the exogenous accounts. For example, if the capital account is chosen
to be exogenous, then shocks are mainly changes in the investment.

• In all cases, the multiplier model gives the impact on the structure of production,
labor income, income of households, government revenues, savings and imports.

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