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Negative IO Supply Shock Analyses: When Substitution Matters

In: Rethinking Input-Output Analysis

Author

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  • Jan Oosterhaven

    (University of Groningen)

Abstract

The inoperability IO model is one of the most used approaches to estimate the indirect impacts of negative supply shocks. It is a regular IO model formulated in relative changes that inadequately estimates only part of only the negative demand-side impacts of disasters, while it completely ignores the positive substitution effects on the supply side. Other IO approaches are also shown to be unsuited to this task. An information minimizing interindustry programming model is presented as an alternative. Its basic assumption is that economic actors, after a disaster, primarily try to restore their old pattern of economic transactions. By adding the usual fixed ratio assumptions of SU models, an indication is given of the heavy overestimation of the negative impacts of a supply shock when demand-driven IO models are used. Finally, to model the reconstruction phase of major disasters the dynamic IO model is added to this approach.

Suggested Citation

  • Jan Oosterhaven, 2022. "Negative IO Supply Shock Analyses: When Substitution Matters," Advances in Spatial Science, in: Rethinking Input-Output Analysis, edition 2, chapter 0, pages 105-121, Springer.
    • Handle: RePEc:spr:adspcp:978-3-031-05087-9_8
    DOI: 10.1007/978-3-031-05087-9_8
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