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Understanding the Shortcomings of Commodity-based Technology in Input-Output Models: an Economic-Circuit Approach

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  • Louis de Mesnard

Abstract

The Make-Use Model serves as a basis for most national accounting systems as the System of National Accounts (SNA) and is acknowledged as the most suitable model for interregional analysis. Two hypotheses are traditionally made featuring either industry-based technologies (IBT) or commodity-based technologies (CBT). While industry-based technologies can be easily interpreted in terms of a demand-driven economic circuit, it will be shown that: (1) commodity-based technologies cannot be interpreted as a demand-driven economic circuit because this involves computing the inverse of a matrix (the matrix of industry output proportions), which is either impossible or generates negative terms; (2) the only way to obtain a plausible explanation of CBT is to convert it into a supply-driven model. This provides a new reason for rejecting CBT: either IBT is adopted but violates Kop Jansen and ten Raa's axioms, or CBT is chosen but must be converted into a poor or unrealistic supply-driven model. Copyright Blackwell Publishers, 2004

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  • Louis de Mesnard, 2004. "Understanding the Shortcomings of Commodity-based Technology in Input-Output Models: an Economic-Circuit Approach," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 125-141.
  • Handle: RePEc:bla:jregsc:v:44:y:2004:i:1:p:125-141
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    Cited by:

    1. Ichihara, Silvio Massaru & Guilhoto, Joaquim José Martins & Imori, Denise, 2009. "Combining geoprocessing and interregional input-output systems: An application to the State of São Paulo in Brazil," MPRA Paper 30696, University Library of Munich, Germany.
    2. Thijs ten Raa & José Rueda-Cantuche, 2013. "The Problem of Negatives Generated by the Commodity Technology Model in Input–Output Analysis: A Review of the Solutions," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 2(1), pages 1-14, December.
    3. repec:rri:wpaper:200712 is not listed on IDEAS
    4. Randall Jackson & Walter Schwarm, 2011. "Accounting foundations for interregional commodity-by-industry input-output models," Letters in Spatial and Resource Sciences, Springer, vol. 4(3), pages 187-196, October.
    5. Randall Jackson & Walter Schwarm, 2007. "Issues in the Implementation of Interregional Commodity by Industry Input-Output Models," Working Papers Working Paper 2007-12, Regional Research Institute, West Virginia University.
    6. Ichihara, Silvio Massaru & Guilhoto, Joaquim José Martins & Imori, Denise, 2008. "Geoprocessing and estimation of interregional input-output systems an application to the state of Sao Paulo in Brazil," MPRA Paper 54036, University Library of Munich, Germany.
    7. Fedriani, Eugenio M. & Tenorio, Ángel F., 2012. "Simplifying the input–output analysis through the use of topological graphs," Economic Modelling, Elsevier, vol. 29(5), pages 1931-1937.
    8. Argyrios D. Kolokontes & Chrysovalantis Karafillis & Fotios Chatzitheodoridis, 2008. "Peculiarities And Usefulness Of Multipliers, Elasticities And Location Quotients For The Regional Development Planning: An Other View," Romanian Journal of Regional Science, Romanian Regional Science Association, vol. 2(2), pages 118-133, December.
    9. repec:kap:jgeosy:v:19:y:2017:i:4:d:10.1007_s10109-017-0250-5 is not listed on IDEAS

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