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A Study of the Role of Regionalization in the Generation of Aggregation Error in Regional Input -Output Models

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  • Michael L. Lahr
  • Benjamin H. Stevens

Abstract

Although the need for aggregation in input -output modelling has diminished with the increases in computing power, an alarming number of regional studies continue to use the procedure. The rationales for doing so typically are grounded in data problems at the regional level. As a result many regional analysts use aggregated national input -output models and trade -adjust them at this aggregated level. In this paper, we point out why this approach can be inappropriate. We do so by noting that it creates a possible source of model misapplication (i.e., a direct effect could appear for a sector where one does not exist) and also by finding that a large amount of error (on the order of 100 percent) can be induced into the impact results as a result of improper aggregation. In simulations, we find that average aggregation error tends to peak at 81 sectors after rising from 492 to 365 sectors. Perversely, error then diminishes somewhat as the model size decreases further to 11 and 6 sectors. We also find that while region - and sector -specific attributes influence aggregation error in a statistically significantly manner, their influence on the amount of error generally does not appear to be large. Copyright 2002 Blackwell Publishers Inc.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Regional Science.

Volume (Year): 42 (2002)
Issue (Month): 3 ()
Pages: 477-507

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Handle: RePEc:bla:jregsc:v:42:y:2002:i:3:p:477-507

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-4146

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Cited by:
  1. Rodolphe Buda, 2008. "Two Dimensional Aggregation Procedure: An Alternative to the Matrix Algebraic Algorithm," Computational Economics, Society for Computational Economics, vol. 31(4), pages 397-408, May.
  2. Christa Court & Randall W. Jackson, 2010. "Time Dynamics and the Introduction of New Technologies within IO Analysis," Working Papers 201003, Regional Research Institute, West Virginia University.
  3. Greenberg, Michael & Mantell, Nancy & Lahr, Michael & Frisch, Michael & White, Keith & Kehler, David, 2005. "Evaluating the economic effects of a new state-funded school building program: the prevailing wage issue," Evaluation and Program Planning, Elsevier, vol. 28(1), pages 33-45.
  4. Ali Jalili, 2005. "Impacts of Aggregation on Relative Performances of Nonsurvey Updating Techniques And Intertemporal Stability of Input–Output Coefficients," Economic Change and Restructuring, Springer, vol. 38(2), pages 147-165, June.

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