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COURSE TITLE: ECONOMIC STATISTICS

COURSE CODE: 031120 ECON 2153
S. A. F. TANVEER AHMMAD
LECTURER, DEPARTMENT OF ECONOMICS
GOVT. BRAJALAL COLLEGE, KHULNA
Inter Industry Relationship
Interindustry Relations and input-Output analysis are two concepts that are closely
related to each other. Interindustry Relations refer to the relationships between
different industries that produce goods and services, while Input-Output Analysis is
a method used to analyze the interdependence of various sectors of an economy.
Interindustry Relations is a concept that refers to the relationships between different
industries in an economy. These relationships are based on the production and
consumption of goods and services. For instance, the automobile industry is related
to the steel industry, as the latter provides the raw materials for the former.
Similarly, the food industry is related to the agriculture industry, as the latter
provides the raw materials for the former. Interindustry Relations are crucial for the
overall functioning of an economy, as the production and consumption of goods and
services are interconnected.
Input-Output Analysis
Input-Output Analysis is a method used to analyze the interdependence of various
sectors of an economy. It is a tool used to understand the relationships between
different industries and how they contribute to the overall economy. Input-Output
analysis helps policymakers and economists to make informed decisions about the
allocation of resources and the development of different sectors. It provides a
comprehensive picture of the economy, including the production, consumption, and
distribution of goods and services.

Input-output analysis (I-O) is a form of macroeconomic analysis based on the

interdependencies between different economic sectors or industries. This method is
commonly used for estimating the impacts of positive or negative economic shocks
and analyzing the ripple effects throughout an economy. I-O economic analysis was
originally developed by Wassily Leontief (1906–1999), who later won the Nobel
Memorial Prize in Economic Sciences for his work in this area.
Applications
Input-Output Analysis has several applications. It is used to understand the impact
of changes in one sector on the overall economy. For instance, if there is a change in
the demand for automobiles, Input-Output analysis can be used to understand the
impact of this change on the steel industry, the transportation industry, and other
related industries. Input-Output Analysis can also be used to understand the impact
of policy changes on the economy, such as changes in taxes or subsidies.
Primary & Inter-mediate Input
Several items used for producing goods which is called input. Inputs are two types:
Inter-mediate(Produced) input and primary input or factor of production. The
product which is used as input to produce something new items is called inter-
mediate input or secondary input. For example, the cotton industry producing thread
which is used for making cloth. So we can say Cotton as primary input ,Thread as
intermediate input and cloth is the final products.

Primary inputs are mainly given from nature such as land, labor, organization. The
source of inter-mediate input is various industry, but the source of primary inputs is
family or household sector.
 Inter-industry relationship
There are flows of goods in “whirlpools and cross currents” between different
industries. The supply side consists of large inter-industry flows of intermediate
products and the demand side of the final goods. In essence, the input-output analysis
implies that in equilibrium, the money value of aggregate output of the whole economy
must equal the sum of the money values of inter-industry inputs and the sum of the
money values of inter-industry outputs. For example, Coal is an input for steel industry
and steel is an input for coal industry, though both are the outputs of their respective
industries. A major part of economic activity consists in producing intermediate goods
(inputs) for further use in producing final goods (outputs).
Leontief Proposal
There are two types of relationships which indicate and determine the manner in
which an economy behaves and assumes a certain pattern of flows of resources. The
internal stability or balance of each sector of the economy, and the external stability
of each sector or intersectoral relationships. Professor Leontief calls them the
“fundamental relationships of balance and structure.” When expressed
mathematically they are known as the “balance equations’ and the “structural
equations”.
 The Static Input-Output Model:
The whole economy is divided into two sectors—“inter-industry sectors” and “final-demand sectors,”
both being capable of sub-sectoral division. The total output of any inter-industry sector is generally
capable of being used as inputs by other inter-industry sectors, by itself and by final demand sectors.
Prices, consumer demands and factor supplies are given. There are no external economies and
diseconomies of production.

Assumptions:
(i) No two products are produced jointly. Each industry produces only one homogeneous product.

(ii) Each producing sector satisfies the properties of linear homogeneous production function i.e.
Production of each sector is subject to constant returns to scale.

(iii) The combinations of inputs are employed in rigidly fixed proportions. The inputs remain in
constant proportion to the level of output. It implies that there is no substitution between different
materials and no technological progress. There are fixed input coefficients of production.
 Example

• For understanding, a four sector economy is taken in which there are three industry
sectors, X 1, X 2 , X 3 and one final demand sector.

• Horizontal explanation Products of the these three industries are being used as an
intermediate product(input) and final consumption by government or household sector.

• Vertical explanation total inputs(from all sectors ) utilized by each sector for its
production.
Input-Output Table
 Mathematical Explanation
Rows which are consumption centres can be written as
X 1 = X 11 +X 12 +X 13 +F 1
X 2 = X 21 +X 22 +X 23 +F 2
X 3 = X 31 +X 32 +X 33 +F 3
L=L1+L2+L3
So Xi = Σ X ij Σ F i
and L=Σ L i
Where all i and j varies from 1 to 3 .
 Coloumn

Columns which are production functions can be written as:

• X 1 = X 11 +X 21 +X 31 +L 1
• X 2 = X 12 +X 22 +X 32 +L 2
• X 3 = X 13 +X 23 +X 33 +L 3
Technological coefficient matrix
 From the assumption of fixed input requirements, the input used for the ith
commodity for a fixed amount , in order to produce jth commodity can be denoted
by aij .
aij= Xij/Xj
X1= a11X1+a12X2+a13X3+F1
X2= a21X1+a22X2+a23X3+F1
X3= a31X1+a32X1+a33X1+F1

L=l1X1+ l2X2+ l3X3

So Xi= ΣaijXj+ Fj for i=1,2 and 3
and L=ΣliXi
X=AX+F
&
L=ΣliXi
So
X=AX+F
[X-AX]=F
[𝐼−𝐴]X=F
X= [𝐼−𝐴]−1 F
This way we can get the value of X1, X2 and X3.
Let us take one example
Input-output table
•The first row total shows that agricultural output is valued at Rs. 300 crores per year. Of this total, Rs.
100 crores go directly to final consumption (demand), that is, household and government, as shown in
the third column of the first row. The remaining output from agriculture goes as inputs: 50 to itself and
150 to industry. Similarly, the second row shows the distribution of total output of the industrial sector
valued at Rs. 500 crores per year. Columns 1, 2 and 3 show that 100 units of manufactured goods go as
inputs to agriculture, 250 to industry itself and 150 for final consumption to the household sector.
•The first column describes the input or cost structure of the agricultural industry. Agricultural output
valued at Rs. 300 crores is produced with the use of agricultural goods worth Rs. 50, manufactured
goods worth Rs. 100 and labour services valued at Rs. 150. To put it differently, it costs Rs. 300 crores
to get revenue of Rs. 300 crores from the agricultural sector. Similarly, the second column explains the
input structure of the industrial sector (i.e., 150 + 250 + 100 = 500).

•Thus “a column gives one point on the production function of the corresponding industry.” The ‘final
demand’ column shows what is available for consumption and government expenditure. The third row
corresponding to this column has been shown as zero. This means that the household sector is simply a
spending (consuming) sector that does not sell anything to itself. In other words, labour is not directly
consumed.
Technological coefficient matrix
 Closed model and open model
In open model when value of final demand is given, we can find out
absolute level of production. But in a closed model , where value of final
demand is not given absolute values cannot be found.
 Practice Problem
Suppose an economy consists of two industries- steel and automobiles. In order to
produce automobiles, the economy requires steel and automobiles. Similarly, in order
to produce steel, the economy requires automobiles and steel. To produce one-rupee
worth of steel, the steel industry requires 0.2 paisa worth of steel and 0.7 paisa worth of
automobiles. To produce one-rupee worth of automobile, the automobile industry
requires 0.5 paisa worth of steel and 0.1 paisa worth of automobiles. Also suppose that
the economy has to export Rs15000 worth of steel and Rs5000 worth of automobiles.
a) Express the above problem as an input-output model.

b) How much of worth of steel and automobiles should be produced to meet the total
demand?
Thanks for being With Patience