OUPUT ANALYSIS

In economics, an output model is a quantitative economic model that

represents the interdependencies between different sectors of a national economy or different
regional economies.[1] Wassily Leontief (1906–1999) is credited with developing this type of
analysis and earned the Nobel Prize in Economics for his development of this model
Origins
Francois Quesnay had developed a cruder version of this technique called Tableau
économique, and Léon Walras's work Elements of Pure Economics on general equilibrium
theory also was a forerunner and made a generalization of Leontief's seminal concept.[2]
Alexander Bogdanov has been credited with originating the concept in a report delivered to
the All Russia Conference on the Scientific Organisation of Labour and Production
Processes, in January 1921.[3] This approach was also developed by L. N. Kritsman and T. F.
Remington, who has argued that their work provided a link between Quesnay's tableau
économique and the subsequent contributions by Vladimir Gromanand Vladimir
Bazarov to Gosplan's method of material balance planning.[3]
Wassily Leontief's work in the input-output model was influenced by the works of the
classical economists Karl Marx and Jean Charles Léonard de Sismondi. Karl Marx's
economics provided an early outline involving a set of tables where the economy consisted of
two interlinked departments.
Leontief was the first to use a matrix representation of a national (or regional) economy.
Basic derivation
The model depicts inter-industry relationships within an economy, showing how
output from one industrial sector may become an input to another industrial sector. In the
inter-industry matrix, column entries typically represent inputs to an industrial sector, while
row entries represent outputs from a given sector. This format therefore shows how
dependent each sector is on every other sector, both as a customer of outputs from other
sectors and as a supplier of inputs. Each column of the input–output matrix shows the
monetary value of inputs to each sector and each row represents the value of each sector's
outputs.

Usefulness
Because the input–output model is fundamentally linear in nature, it lends itself to
rapid computation as well as flexibility in computing the effects of changes in demand.
Input–output models for different regions can also be linked together to investigate the effects
of inter-regional trade, and additional columns can be added to the table to
perform environmentally extended input-output analysis (EEIOA). For example, information
on fossil fuel inputs to each sector can be used to investigate flows of embodied carbon
within and between different economies.
The structure of the input–output model has been incorporated into national accounting in
many developed countries, and as such can be used to calculate important measures such as
national GDP. Input–output economics has been used to study regional economies within a
nation, and as a tool for national and regional economic planning. A main use of input–output
analysis is to measure the economic impacts of events as well as public investments or
programs as shown by IMPLAN and Regional Input-Output Modeling System. It is also used
to identify economically related industry clusters and also so-called "key" or "target"
industries (industries that are most likely to enhance the internal coherence of a specified
economy). By linking industrial output to satellite accounts articulating energy use, effluent
production, space needs, and so on, input–output analysts have extended the approaches
application to a wide variety of uses.
Input-output and socialist planning
In the economy of the Soviet Union, planning was conducted using the method of
material balances up until the country's dissolution. The method of material balances was first
developed in the 1930s during the Soviet Union's rapid industrialization drive. Input-output
planning was never adopted because the material balance system had become entrenched in
the Soviet economy, and input-output planning was shunned for ideological reasons. As a
result, the benefits of consistent and detailed planning through input-output analysis were
never realized in the Soviet-type economies.[9]
Measuring output table
The mathematics of input–output economics is straightforward, but the data
requirements are enormous because the expenditures and revenues of each branch of
economic activity have to be represented. As a result, not all countries collect the required
data and data quality varies, even though a set of standards for the data's collection has been
set out by the United Nations through its System of National Accounts (SNA):[10] the most
recent standard is the 2008 SNA. Because the data collection and preparation process for the
input–output accounts is necessarily labor and computer intensive, input–output tables are
often published long after the year in which the data were collected—typically as much as 5–
7 years after. Moreover, the economic "snapshot" that the benchmark version of the tables
provides of the economy's cross-section is typically taken only once every few years, at best.
However, many developed countries estimate input–output accounts annually and with much
greater recency. This is because while most uses of the input–output analysis focus on the
matrix set of inter-industry exchanges, the actual focus of the analysis from the perspective of
most national statistical agencies is the benchmarking of gross domestic product. Input–
output tables therefore are an instrumental part of national accounts. As suggested above, the
core input–output table reports only intermediate goods and services that are exchanged
among industries. But an array of row vectors, typically aligned at the bottom of this matrix,
record non-industrial inputs by industry like payments for labor; indirect business taxes;
dividends, interest, and rents; capital consumption allowances (depreciation); other property-
type income (like profits); and purchases from foreign suppliers (imports). At a national
level, although excluding the imports, when summed this is called "gross product originating"
or "gross domestic product by industry." Another array of column vectors is called "final
demand" or "gross product consumed." This displays columns of spending by households,
governments, changes in industry stocks, and industries on investment, as well as net exports.
(See also Gross domestic product.) In any case, by employing the results of an economic
census which asks for the sales, payrolls, and material/equipment/service input of each
establishment, statistical agencies back into estimates of industry-level profits and
investments using the input–output matrix as a sort of double-accounting framework.
output analysis versus consistency analysis
Despite the clear ability of the input-output model to depict and analyze the
dependence of one industry or sector on another, Leontief and others never managed to
introduce the full spectrum of dependency relations in a market economy. In 2003,
Mohammad Gani [1], a pupil of Leontief, introduced consistency analysis in his book
'Foundations of Economic Science' (ISBN 984320655X), which formally looks exactly like
the input–output table but explores the dependency relations in terms of payments and
intermediation relations. Consistency analysis explores the consistency of plans of buyers and
sellers by decomposing the input–output table into four matrices, each for a different kind of
means of payment. It integrates micro and macroeconomics into one model and deals with
money in a value-free manner. It deals with the flow of funds via the movement of goods.