Modeling investment flows in input-output Models

Input-output models are a powerful instrument of scenario based analysis of economic policy measures. However, in their classical structure, they do not allow to take into account the processes of the funding of such measures. Most of such measures in transition economies are related to the attraction of external financial resources, which is the reason why, in their planning, it is necessary to understand the dynamics of both the GDP components and the savings-investments balance. In order to expand analytical capacities, the classical input-output models should be enlarged by adding equations reflecting the flows of savings, investments and borrowings. The proposed approach allows to constructs an input-output model of the development of the domestic economy based on the well known system of the equations of input-output models to calculate the processes of the formation of national savings, attraction of external financial resources with their transformation into investments and the impact of those processes on the formation of domestic demand. Based on such a model, one can make a quantitative assessment of macroeconomic effects of the economic policy of encouraging the investment demand in a country, which is very urgent under the modern conditions of the search for ways of the expansion of the domestic market in Ukraine. Thanks to the reconciliation of the indicators of saving-investment balance with the relationships of the classical input-output model, they may be built in into the existing input-output models in order to expand their analytical possibilities. The developed model is based on the main relationships of the national accounts and the structure of investment flows systemized in the form of a matrix. The matrix of investment flows is built based on the indicators of capital accounts and statistics of capital investments. All input data for the model are available in the official statistics of Ukraine and OECD countries, which makes it possible to compare the structures of different economies in order to analyze the practice of use and efficiency of certain economic policy measures. The developed methodology has been tested for the task of analysis of the efficiency of use of the instruments encouraging business activities in the economy through increasing capital investments of the public sector. Calculations have been made for most European countries, which makes it possible to compare the structural peculiarities of different economies shaping the processes of the multiplication investment funds. Based on the obtained results, it is established that the state expenditures in Ukraine allow to encourage economic activities; however, the obtained GDP increase is lower than the volumes of invested funds. And the results of the use of such instruments have a postponed effect, although, as compared with other countries, that effect is quite powerful due to the well established intersectoral ties.