The Demand Driven and the Supply-Sided Input-Output Models. Notes for the debate

AROCHE REYES, FIDEL and MARQUEZ MENDOZA, MARCO ANTONIO (2013): The Demand Driven and the Supply-Sided Input-Output Models. Notes for the debate.

Abstract

The demand-driven version of the open Input-Output model determines production as a function of final demand, given the production technology. On the contrary, in the supply-sided version, value added determines output and producers must induce sales in order to achieve a desired level of income. This latter version of the model has been criticised and even rejected on the bases of its implausibility, its difficult interpretation and its bizarre implications. This paper argues however that the logic of the supply-side model is not mathematically at odds with Leontief’s arguments. Rejection of the model is a matter of theoretical interpretation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Input-Output model, demand-driven model, supply-driven model, Leontief, Ghosh, balanced growth
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B29 - Other; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C67 - Input-Output Models

References

Aroche Reyes F. (1993) “Endogenous Prices for Input-Output Models: A Note” Economic Systems Research Vol. 5, No. 4, pp. 365-376

Arrow K. J. and Debreu G. (1954) “Existence of an Equilibrium for a Competitive Economy” Econometrica Vol. 22 No. 3 pp. 265-290

Augustinovics M. (1970) “Methods of International and Intertemporal Comparison of Structure” in A. P. Carter and Brody A. (eds.) Contributions to Input-Output Analysis, Amsterdam: North Holland, pp. 249-269

Bon R. (1986) “Comparative Stability Analysis of Demand-side and Supply-side Input-Output Models” International Journal of Forecasting, vol. 2, pp. 231-235

Bon R. (1988) “Supply-Side Multirregional Input-Output Models” Journal of Regional Science vol. 28, pp. 41-50

Bulmer-Thomas V. (1982) Input-Output Analysis in Developing Countires: Sources and Methods. Chichester: Wiley

Cassel G. (1918) Theoretische Sozialökonomie, Leipzig: C. F. Winter

Chen C. Y. and Rose A. (1986) The Joint Stability of Input-Output Production and Allocation Coefficients Regional Research Institute, West Virginia University. Research Paper No. 8617 http://www.rri.wvu.edu/pdffiles/wp8617.pdf (August 30, 2012)

Chenery H. and T. Watanabe (1958) “International Comparisons of the Structure of Production” Econometrica, Vol. 26, pp. 487-521

de Mesnard L. (2009) “Is the Ghosh Model Interesting” Journal of Regional Science Vol. 49, No. 2, pp. 361-372.

Dietzenbacher E. (1997) “In Vindication of the Ghosh Model: A Reinterpretation as a Price Model” Journal of Regional Science Vol. 37, No. 4, pp. 629-651

Georgescu-Roegen N. (1951) “Some Properties of a Generalized Leontief Model” Koopmans T. (editor) Activity Analysis of Production and Allocation New York: John Willey and Sons; London: Chapman and Hall, Cowles Commission for Research in Economics

Giarratani F. (1976) “Application of an Interindustry Supply Model to Energy Issues” Environment and Planning Vol. 8, pp. 447-454

Ghosh A. (1958) “Input-Output Approach in an Allocation System” Economica New Series, Vol. 25, No. 97, pp. 58-64

Gruver G. (1989) “On the Plausibility of the Supply-Driven Input-Output Model: A Theoretical Basis for Input-Coefficient Change” Journal of Regional Science Vol. 29, pp. 441-450

Hazari R. B. (1970) “Empirical Identification of Key Sectors in the Indian Economy” The Review of Economics and Statistics, Vol. 52, No. 3 Jones L. (1976) “The Measurement of Hirschman Linkages” Quarterly Journal of Economics, Vol. XC, No. 2

Laumas P. (1976) “The Weighting Problem in Testing the Linkage Hypothesis” Quarterly Journal of Economics, Vol. XC, No. 2

Leontief W. (1936) “Quantitative Input and Output Relations in the Economic System and the United States.” The Review of Economics and Statistics Vol. XVIII No. 3 pp. 105-125

Leontief W. (1937) “Interrelation of Prices, Output, Savings and Investment. A Study in Empirical Application of the Economic Theory of General Interdependence.” The Review of Economics and Statistics Vol. XIX No. 3 pp. 109-132

Leontief W. (1944) “Output, Employment, Consumption and Investment” Quarterly Journal of Economics, Vol. 58, No.2, pp. 290-314

Leontief W. (1986) Input-Output Economics, New York: Oxford University Press

Marx K. (1885) Das Kapital, Kritik der politischen Ökonomie Bd.2: Der Zirkulationsprozeß des Kapitals. Translated into Spanish as El Capital, Crítica de la Economía Política, Tomo II, Vol. 5, El Proceso de Circulación del Capital, México: Siglo XXI Editores, 1979

McGilvray J. (1981) “Linkages, Key Sectors and Development Strategy” in Leontief W. (ed.) Structure, System and Economic Policy, Cambridge: Cambridge University Press

Nikaido H. (1970) Introduction to Sets and Mappings in Modern Economics, Amsterdam: North Holland

Miller R., Blair P. (2009) Input-Output Analysis: Foundations and Extensions, Cambridge: Cambridge University Press

von Neumann J. (1937) „Über ein öikonomisches Gleichungssystem und eine Verallgemeinerung des Brouwersschen Fixpunksatzes.“ Ergebnisse eines mathematischen Kolloquiums, pp 73-83. Translated into Spanish as “Un modelo de equilibrio económico general.” in Segura J. y Rodríguez C. (eds.) La economía y sus textos, Madrid: Taurus, 1998.

Oosterhaven J. (1988) “On the Plausibility of the Supply-Driven Input-Output Model” Journal of Regional Science Vol. 28, No. 2, pp. 203-217

Say J. B. (1841) Traité d'économie politique, 6e éd, Osnabrück: O. Zeller

Samuelson Paul (1951) “Abstract of a Theorem concerning Substitability in Open Leontief Models” Koopmans T. (editor) Activity Analysis of Production and Allocation New York: John Willey and Sons; London: Chapman and Hall, Cowles Commission for Research in Economics

Schumann J. (1990) “On Some Basic Issues of Input-Output Economics: Technical Structure, Prices, Imputations, Structural Decomposition, Applied General Equilibrium” Economic Systems Research Vol. 2, No. 3

Schinkte, J. and R. Stäglin (1988): “Important Input Coefficients in Market Transactions’ Tables and Production Flow Tables”, in M. Ciaschini (ed.), Input-Output Analysis: Current Developments, Chapman and Hall, London

Sraffa P. (1960) Production of Commodities by Means of Commodities Translated into Spanish as Produccion de mercancías por medio de mercancías: Preludio a una critica de la teoría económica, Barcelona: Oikos-Tau, 1982

Walras L. (1874) Elements d’economie politique pure, ou, theorie de la richesse sociale, Lausanne: F. Rouge (1889)