Indirect effects - a formal definition and degrees of dependency as an alternative to technical coefficients

Author Info

• Francois Coppens

()
(National Bank of Belgium, Microeconomic Analysis Division)

Abstract

The use of input-output analysis for the computation of secondary effects of final demand changes is well-known. These 'final demand effects' can be calculated using technical coefficients and the inverse of the Leontief matrix. This paper offers an alternative to the use of technical coefficients. Its goal is threefold. First of all degrees of dependency are defined and it is shown how they can be used to compute secondary effects. Their definition is based on an input-output table. Secondly the concept of secondary effects is extended to what is called indirect effects. These indirect effects are not only related to final demand but to total industry output. It is shown how these indirect effects can be calculated using technical coefficients or degrees of dependency. The method used is a variant of the so-called Hypothetical Extraction Methods. Double counting is avoided, as such the resulting multipliers are 'net multipliers'. It is formally demonstrated that technical coefficients and degrees of dependency give the same results when a recent input-output table is available. If this is not the case then the results are different. It is impossible to say which of the two estimates is better. Since technical coefficients are already broadly accepted, some examples are given to justify the use of degrees of dependency. Finally it is explained how the unavailability of an input-output table can be solved. Starting from the supply-use tables a 'quick and dirty method' to infer an input-output table is provided. This topic is justified by the fact that for Belgium input-output tables are only published for those years that are divisible by five, with a three year lag. A short empirical analysis, based on currently available data, shows that technical coefficients and degrees of dependency have comparable performance, with a slight advantage for the technical coefficients. This performance is measured relative to a 'right' result, being the indirect effects for the year 2000 computed using the now available input-output table for the year 2000. This result is called 'right' because it does not make any assumptions on stability of technical coefficients nor of degrees of dependency. The empirical analysis also compares the use of a recent supply-use table to the use of an old input-output table. Supply-use tables on average overestimate the 'right' result. They are however often closest to the 'right' result at the first level. Since these conclusions are based on limited data further analysis is required as more data becomes available.

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File URL: http://www.nbb.be/doc/oc/repec/reswpp/WP67.pdf

Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 67.

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Length: 56 pages
Date of revision:
Handle: RePEc:nbb:reswpp:200505-1

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Related research

Keywords: indirect effects; input-output analysis; degrees of dependency; technical coefficients; net multiplier;

Find related papers by JEL classification:

• C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
• D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

This paper has been announced in the following NEP Reports:

References

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1. Jan Oosterhaven & Dirk Stelder, 2002. "Net Multipliers Avoid Exaggerating Impacts: With A Bi-Regional Illustration for the Dutch Transportation Sector," Journal of Regional Science, Wiley Blackwell, vol. 42(3), pages 533-543.
2. François Coppens & George Van Gastel, 2003. "De autonijverheid in België," Working Paper Document 38, National Bank of Belgium.
3. Frédéric Lagneaux, 2004. "Economic importance of the Flemish maritime ports: Report 2002," Working Paper Document 56, National Bank of Belgium.
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Citations

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Cited by:
1. Olivier Blanchard & Jordi Gali, 2006. "A new Keynesian model with unemployment," Working Paper Research 92, National Bank of Belgium.
2. repec:ner:leuven:urn:hdl:123456789/382740 is not listed on IDEAS
3. repec:ner:leuven:urn:hdl:123456789/319741 is not listed on IDEAS
4. repec:ner:leuven:urn:hdl:123456789/387848 is not listed on IDEAS
5. repec:ner:leuven:urn:hdl:123456789/387875 is not listed on IDEAS
6. Andrew B. Bernard & Emily J. Blanchard & Ilke Van Beveren & Hylke Y. Vandenbussche, 2012. "Carry-Along Trade," NBER Working Papers 18246, National Bureau of Economic Research, Inc.
7. repec:ner:leuven:urn:hdl:123456789/330214 is not listed on IDEAS
8. repec:ner:leuven:urn:hdl:123456789/419462 is not listed on IDEAS
9. Joseph Plasmans & Tomasz Michalak & Jorge Fornero, 2006. "Simulation, estimation and welfare implications of monetary policies in a 3-country NOEM model," Working Paper Research 94, National Bank of Belgium.
10. repec:ner:leuven:urn:hdl:123456789/386402 is not listed on IDEAS
11. Joachim Keller, 2008. "Agency problems in structured finance – a case study of European CLOs," Working Paper Document 137, National Bank of Belgium.
12. repec:ner:leuven:urn:hdl:123456789/387876 is not listed on IDEAS
13. repec:ner:leuven:urn:hdl:123456789/381952 is not listed on IDEAS
14. Andrew B. Bernard & Ilke Van Beveren & Hylke Vandenbussche, 2010. "Multi-product exporters, carry-along trade and the margins of trade," Working Paper Research 203, National Bank of Belgium.

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