Scribd
Upload
7 views20 pages

Input Output Analysis

Input Output Analysis applies a static general equilibrium approach to assess production viability by examining the relationship between industry outputs and inputs. The model distinguishes between viable and non-viable production scenarios based on demand and supply conditions, and includes both producing and non-producing goods. Key components include the transaction matrix, input coefficient matrix, and the Hawkins Simon viability condition, which ensures that the system can meet final demand requirements.

Uploaded by

raghav sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
7 views20 pages

Input Output Analysis

Input Output Analysis applies a static general equilibrium approach to assess production viability by examining the relationship between industry outputs and inputs. The model distinguishes between viable and non-viable production scenarios based on demand and supply conditions, and includes both producing and non-producing goods. Key components include the transaction matrix, input coefficient matrix, and the Hawkins Simon viability condition, which ensures that the system can meet final demand requirements.

Uploaded by

raghav sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 20

Input Output Analysis

Introduction

Input Output analysis is an important application of static


general equilibrium approach to the empirical analysis of
production. Rationale behind this analysis is that output of
every industry is either used as an intermediary input for other
industries or as an direct consumption. On the basis of this we
will find how much we will have to produce or whether it is
viable or not ( if D< S, Viable & if D> S then not Viable).
Open Model
If besides the n industries the model contains
an open sector which exogenously determines
a final demand (non-input demand for the
product of each industry & which supplies a
primary input (say labour service) not
produced by n industries themselves, the
model is an open model.
Viable Requirements

If we get a situation to find a combination


which can satisfy C1 & C2 then situation is
viable.
Feasible Requirement

Viability requirement find combination of X 1


& X2 to satisfy C1 & C2. Once viable
requirement is satisfied then we check whether
it is possible for economy to produce that
product
Types of Goods

There are two types of goods i.e. Producing &


Non-Producing goods. For producing goods
there is no problem if system is viable but
problem arises for non-producing goods
Assumptions
 Each industry produces only one homogeneous
commodity.
 Each industry uses a fixed input ratio for production
of its output.
Production in every industry is subject to constant
return to scale.
 Only one method is viable to produce the
commodity
 No joint production takes place means single
process can produce either X1 and X2
Transaction Matrix

X1 X2 Final Demand Total Output


X11 X12 C1 X1
X21 X22 C2 X2
X01 X02 X0

Here X1 & X2 means total output produced


X11 means first commodity required to produce X1 commodity
Row stands for distribution function
Column stands for production function
Final Demand i.e. non-input demand is C1 & C2
Solution of Input-Output Model
Rows can be written in equation form as:
X11+X12+C1=X1
X21+X22+C2=X2
X01+X02=X0
X11, X21,X01 are inputs required to produce first commodity. If we
divide X11/X1, X21/X1, X01/X1 then we get a11, a21,a01 i.e. per unit
requirement of X11 i.e. then by having this we will get another matrix i.e.
input coefficient matrix.
a11 amount of first commodity required to produce 1 unit of first commodity
a21 amount of second commodity required to produce 1 unit of first commodity
a01 amount of non producing good (NPG) required to produce 1 unit of first
commodity

Similarly for the second commodity i.e. a21 , a22 , a01


Input Co-efficient Matrix
Inter Industry Requirement

a11 a12 c1
a21 a22 c2
a01 a02
Input Coefficient of NPG
a11 , a12 , a21 , a22 are input coefficients, we assume it
to be remain fixed.

Equation form of input coefficients is as follows:

a11 X11 + a12 X12 + C1=X1 Inter Industry


requirement

a21 X21 + a22 X22 + C2 =X2


a01 X01 + a02 X02 =X0 ( )
If all the input coefficients and final demand
i.e. C1 & C2 are known then we have 3
equations of function X1, X2, X0 . Before
solving 3 equations for these unknown we
have to check viable condition for this .
For the viability condition we proceed like this
C1 = X1 – a11 X1 – a12 X2 (i)
Subtracting unit utilised from total output so
remaining part will satisfy final demand.
C2 = X2 – a21 X1 – a22 X2 (ii)
From (i) and (ii)
(1- a11) X1 - a12 X2 = C1
- a21 X1 + (1-a22)X2= C2
In Matrix form
1-a11 -a12 X1 C1
-a21 (1-a22) X2 C2
If we subtract input coefficient matrix from
I ( Identity Matrix), we get,
1 0 a11 a12
0 1 a21 a22 I-A
(I- A) X = C
(I-A) ( I-A) C
X (I-A) C
From ( )

a01 X01 + a02 X 02 = X0


Demand for Labour Supply of Labour
If Demand for Labour < Supply of Labour
Then it is feasible.
It will be possible to find the utilisation of X 1
& X2 only if system is viable.
X = (I-A) C
X1 B11 B12 C1
X2 B21 B22 C2
(I-A)
The values of X1 and X2 can be written as:
X1 = B11C1 + B12 C2
X2 = B21C1 + B22 C2
Value of X0 is given , thus on the basis of that value,
it may be possible to produce X1 & X2. Supply of
Labour is known & we have to find demand for
labour. If supply is less than demand then it is not
feasible to produce X1 & X2 and also not possible to
satisfy C1 & C2 and Vice-Versa.
Hawkins Simon Viability Condition

System is viable if and only if it is possible to


find optimum levels which can satisfy the final
demand requirement. Thus, for viability
condition we have,
I-A > 0
References
 Chiang, A. C. (1992). Elements of dynamic optimization.
McGraw-Hill, New York.

 Chiang and Wainwright(2005), Fundamental Methods of


Mathematical Economics, Mc. Graw Hill, New York

 Miller and Blair (2009), Input Output Analysis: Foundations and


Extensions, Cambridge University Press, UK.

 Raa, Thijs Ten ( 2005), The Economics of Input Output Analysis,


Cambridge University Press, UK.

You might also like