Regional Input-Output, Leontief-Strout and Uncertainty

The multi-regional input-output approach of Leontief-Strout, described in Leontief and Strout (1963), built on the Chenery-Moses model introduced by Chenery (1953). In this model, two key assumptions are embedded (i) the demand pool assumption, whereby the users of intermediate inputs are taken as indifferent to their region of origin and (ii) the supply pool assumption, where producers are taken as indifferent to the region of destination of their outputs. The resulting model turns out to be much more tractable than a full interregional model, and has been widely applied. Leontief and Strout used an independent gravity-type model to estimate the resulting trade flows, as a substitute for the provision of trade coefficients in models from the Chenery-Moses tradition. Wilson (1970) provided a more integrated procedure, setting up a conventional entropy framework to determine the commodity flows enhanced by the Leontief-Strout input-output balance relations introduced as constraints. In other words, the flows were co-determined by the transport cost information together with the technological information embodied in the Leontief-Strout representation of input-output. Another enhancement was to replace the entropy framework by one from information theory based on historical trade patterns (Snickars and Weibull, 1977), yielding models such as those described in Batten (1983).