Input – output model of economic development,Economic model,Development,Planning,Regional development theories,Development planning

1. Regional development theories
Development planning
Input – output
analysis
Presented by:
Aalekhya Kandala
08011BA001
VI sem
B.Tech Plng
JNA & FAU

2. Introduction
Input-output model is a novel technique invented by Professor Wassily
W.Leontief in 1951.
It is used to analyze inter-industry relationship in order to understand the inter-
dependencies and complexities of the economy and thus the conditions for
maintaining equilibrium between supply and demand. It is also known as "inter-
industry analysis."
"Input-output analysis is the name given to the attempt to take account of
general equilibrium phenomena in the empirical analysis of production.“
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3. Introduction
The basic features of input-output analysis are:
 The input-output analysis is concerned with production only. It attempts to
determine what amounts of different inputs must be used up in the
production process for getting a certain output of a commodity, given the
supply of productive factors and the state of technology.
 Input-output analysis is an empirical investigation. It distinguishes it from the
approach of general equilibrium theorists. It is both simplified and narrow
than the usual general equilibrium theory.
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4. Main Features
The input-output analysis is the finest variant of general equilibrium.
It has three main elements:
 It concentrates on an economy which is in equilibrium. It is not applicable
to partial equilibrium analysis.
 It does not concern itself with the demand analysis. It deals exclusively
with technical problems of production.
 It is based on empirical investigation and assumptions.
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5. Assumptions
This analysis is based on the following assumptions:
 The whole economy is divided into two sectors-"inter-industry sector" and
"final demand sector," both being capable of sub-sectoral division.
 The total output of any inter-industry sector is generally capable of being used
as inputs by other inter-industry sectors, by itself and by final demand sectors.
 No two products are produced jointly. Each industry produces only one
homogeneous product.
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6.  There are constant returns to scale.
 There are no external economies and diseconomies of production.
 The combinations of inputs are employed in rigidly fixed proportions. The inputs
remain in constant proportion to the level of output. It implies that there is no
substitution between different materials and no technological progress. There are
fixed input coefficients of production.
The input-output analysis consists of two parts: the construction of the
input-output table and the use of input-output model.
Assumptions
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7. Construction of Input-Output
Table
 Structurally a typical input-output
table comprises of four quadrants as
shown in table.
 Table is divided horizontally into a
processing and a payments sector.
 Quadrants I and II reflect the
processing sector, quadrants III and
IV indicate the payments sector.
Processing Sector
Payment Sector
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8. Construction of Input-Output
Table
 In the table while the two right hand quadrants record
the final demand, the two left-hand quadrants reflect
the demand of the intermediate users.
Demand of
Intermediate
Users
Final Demand
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9. The Input-Output table quadrant
wise
 Quadrant I: The upper right hand quadrant depicts the supply of output; of
each industry to final consumers.
 Quadrant II: The upper left hand quadrant records the inter-industry supply
of outputs and purchase of inputs. Along rows it shows the sale of the product
of each industry to all other industries; and along columns purchases of each
industry from other industries forming its input
 Quadrant III: The lower left-hand quadrant shows the payments industries
for the various factor services (primary inputs) and also the payment to
foreigners for the purchase of imports.
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10.  Quadrant IV : The lower right hand quadrant indicates the direct sales of factors of
production to final users, viz., the households and the government.
 The final demand quadrant records the end use of the finished products in the form
of final consumption expenditure of households and government, gross domestic
investment and exports. To each of these components of the final demand a separate
column may be allocated in the input-output table.
 Along rows it records factor payments and allocates a row to each of the inputs and
along columns it shows a payment made by each of the industries to the various
factors employed.
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11. Input-Output Table
•
X stands as the value of out put 1/5/16

12.  The two subscripts denotes the industry where output has originated and the
latter the destination to which it has reached.
 Example, xij refers to the element in the ith row and the jth column,
which in our table means sales by the ith industry to the jth industry, i.e.
input into j th industry from ith Industry, where
i = 1.....n, and j = 1.....n.

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13.  In the upper right hand quadrant the disposal of output
to users has been shown.
 Here a single subscript that has been used indicates the
origin of output.
Output
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14.  In the payments quadrant the first subscript is ‘0’ and the second refers to the
industry making the payment for the primary input. We have assumed that there is
no final demand for the primary inputs, and therefore, the lower right hand
quadrant is empty.
Payment Quadrant
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15. In the typical input-output table, of intra-industry
transactions, such as x11 , x22 ,x33 and xnn. These
imply that industries also use their own output as
inputs.
To estimate net output of industries, which is the net
of the use of the own output by the industry as input,
the diagonal elements x11 , x22 , x33 ,etc., would be1/5/16

16. An input-output table highlights important relationships:
 It shows that the row total of each industry equals its column total which
implies that the total output of the industry is equal to the value of the total
input employed.
 It shows that the total output of an industry equals the sum total of its output
required for intermediate uses plus its final uses.
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17. Uses of Input-Output model
Input-output analysis has been generally employed for two main purposes.
 In all those countries which have adopted some kind of planning it is used for
achieving consistency in plans.
 Big corporations use this technique for projection and forecasting purposes.
This enables them to plan for their investment and production activities.
 Forecasting: Under forecasting one predicts what will happen on the basis
of certain assumptions
 Input-output analysis is used for examining what is economically feasible. This
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18.  Input-output relationships has been found useful in growth and planning
exercises of only those countries where manufacturing sector is considerably
developed, as a result of which there is great interdependence between
various productive activities.
A United Nations study lists the following uses of input-output models in
development programming:
 They provide for individual branches of the economy’s estimates of
production and import levels that are consistent with each other and with the
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19.  The solution to the model aids in the allocation of the investment required to
achieve the production levels in the program and it provides a more accurate
test of the adequacy of available investment resources.
 The requirements for skilled labour can be evaluated in the same way.
 The analysis of import requirements and substitution possibilities is facilitated
by the knowledge of the use of domestic and imported materials in different
branches of the economy.
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20.  In addition to direct requirements of capital, labour and imports, the indirect
requirements in other sectors of the economy can also be estimated.
 Regional input-output models can also be constructed for planning purposes to
explore the implications of development programmes for the particular region
concerned, as well as for the economy as whole.
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21. Conclusion
This model is “primarily applicable in economies that have achieved a
certain degree of industrial development and hence have a substantial
volume of inter-industry transactions".
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22. THANK YOU
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