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Equivalence between input-output and value-added economies

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  • Leal-Ordoñez Julio C.

Abstract

I show that, under standard assumptions, input-output (or network) economies are equivalent to value-added ones. Using a generalized version of the model in Acemoglu et al. (Econometrica, 2012), I show that the degree of influence of a given sector is equal to its value added share. This occurs because --by using the input-output network-- the output of a given sector indirectly contributes to the production of the final consumption of the rest of the sectors, which constitutes the source of its value. Thus, value-added economies deliver the same aggregate response to sectoral shocks than input-output ones. Despite this equivalence, the Leontief multiplier, which applies to sales and gross output, is intact.

Suggested Citation

  • Leal-Ordoñez Julio C., 2017. "Equivalence between input-output and value-added economies," Working Papers 2017-13, Banco de México.
    • Handle: RePEc:bdm:wpaper:2017-13
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    File URL: https://www.banxico.org.mx/publications-and-press/banco-de-mexico-working-papers/%7B8A5198CA-750C-1922-7181-0A18A271EF71%7D.pdf
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    References listed on IDEAS

    as
    1. Lorenzo Caliendo & Fernando Parro & Esteban Rossi-Hansberg & Pierre-Daniel Sarte, 2018. "The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2042-2096.
    2. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2013. "The Network Origins of Large Economic Downturns," NBER Working Papers 19230, National Bureau of Economic Research, Inc.
    3. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Input-output; Degree of influence; Value added; Network economies; Sectoral shocks;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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