Advances in Input-Output Analysis: Technology, Planning, and Development

By William Peterson | Go to book overview

coping strategy. Admittedly, part of the stability is due to the small sectoral gross output decreases in reaction to the 50-pereent embargo, and the fact that the direct and indirect shortfall is spread across thirty-four Sectors. 13 However, that is the beauty of the supply model -- it indicates how a supply shock can be cushioned by maintaining stability in distribution patterns. 14


CONCLUSION

This chapter has provided a theoretical understanding and empirical test of the joint stability of production and allocation versions of the I-O model. An empirical example showed a remarkable stability for the case of a sizeable supply disruption. The evidence supports a conclusion that use of the supply-driven, or allocation, version of the I-O model will not necessarily violate the basic production conditions of its conventional counterpart.


NOTES
1.
Giarratani ( 1980) has argued that the allocation model is not as theoretically sound as the production model because the latter is grounded on a behavioral assumption stemming from a branch of production theory whereas the former "rests on behavior about which we have little knowledge" (p. 188). However, Giarratani ( 1981) has found the allocation model to be as accurate as the conventional model in projections of the U.S. economy. Even stronger criticisms of the conceptual soundness of the allocation model have been offered by Oosterhaven ( 1981, 1988). Recent work by Gruver ( 1989) rebuts one of Oosterhaven's major charges concerning the economic sense of production input coefficient changes stemming from applications of the corresponding allocation version of an I-O model.
2.
Note that the results of equation (8) are symmetric with respect to explaining changes in allocation coefficients as well. Note also that equation (8) is not the definition of joint stability, but rather a relationship on which it depends.
3.
Since writing the first draft of this chapter in the summer of 1985, we have discovered two alternative derivations of equation (8) by Miller and Blair ( 1985) and Deman ( 1986). However, in the case of the former there was no discussion of the joint stability issue, and in the case of the latter there was only passing mention, followed by added confusion in Deman ( 1988). The reader is referred to Miller ( 1989) for a discussion of the restrictiveness of Deman's stability relationship based on biproportional matrix properties. We are also especially grateful to Miller for prodding us to clarify some of our original concepts.
4.
Small multipliers are attributable to a lack of interdependence or a lack of self-sufficiency of an economy. Moreover, in regional economies, coefficient stability may be less crucial when intraregional trade coefficients are used. These coefficients represent purchases and sales between firms in the region and thus are typically smaller than full technical requirements. As Davis and Salkin ( 1984) pointed out, a significant increase in one of these coefficients may readiiy be made up by imports.

Note also that the smaller the variance of the allocation multipliers, the more stable we expect production coefficients to be. However, it is more difficult to tie this condition to the structure of the economy, as we did in the case of the multiplier size. A balanced economic structure is not, for example, a sufficient condition for a low variance.

5.
The first version of this chapter was circulated as a paper in 1985 and presented at the University of Pittsburgh Modeling and Simulation Conference in 1986, in addition to the International Conference on Input-Output Techniques. Since that time there has been a strong renewed interest in the supply-side I-O model. A number of contributions to the literature have referred to the Chen-Rose joint stability property. Several of these references

-33-

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