Short-run inter-country price formation: an analysis of international market dependence by price-endogenized input-output model
The assumption of fixed input coefficients in the traditional input-output analysis is relaxed by introducing the possibility of factor substitution, and the simultaneous repercussion of prices and outputs in the world market is analyzed based on the 1990 international input-output table. Taking factor substitution into account, it is found that the repercussion of prices is not negligible and the effect of an increase in the final demand on output is more dispersed from the original country to the other economic regions than the fixed coefficient case. The findings indicate the possibility of the over-estimation of the domestic multiplier effect and the under-estimation of an extent of the inter-regional dependence in the fixed coefficient case.
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