Transcript Document

The North East Economic Model
A Collaborative Project with ONE/NERIP
Professor Ian Stone
Andrew Hunt
Durham Business School
November 2006
(1) Multiplier Analysis in a Regional
Context
Overview
What is the effect of a change (or posited change)
upon the region?
• Differences in regional fluctuations
– timing and magnitudes
• Regional size
– level of diversification
– level of dependence on other regions
• Main modelling approaches
– regional multipliers
– input-output table
– econometric modelling
Impact Analysis 1
New production
activity
Demand for
Labour
Previously
unemployed
Workers in other
industries
Demand for
other inputs
In-migrants
Commuters
Demand for goods
and services
Locally produced
goods and services
Imports into region
Impact Analysis 2
• PRIMARY EFFECT
– Direct Effect: The income and employment
arising at the new plant
• SECONDARY EFFECTS
– Indirect Effect: The income and employment
arising out of the plants demand for inputs
– Induced Effect: The income and employment
arising as increases in income are spent within
the local economy
First Round Leakages
Initial positive
injection
Indirect and
induced
expenditure
within region
Increase in
regional
GDP/wages/
profits etc.
Imports into
region, taxes
on additional
expenditure
Taxes, NI, retained
earnings, loss of
benefits etc
Increase in
disposable income
Savings of
residents, earnings
to residents from
other regions
Application: Universities Local Economy
•
•
•
•
Expenditure on staff
Student expenditure
Non-staff expenditure
Feedback from staff expenditure
Problem with multiplier studies – collection of
data for each study …time-consuming and costly
Automotive Sector
Gross Output at Basic Prices £million
Initial
P rim ary ind ustries
0
First
R ound
0
S econdary ind ustries
0
0
0
0
1
3175
162
16
26
3379
Food and D rink
0
3
1
10
14
Tobacco products
0
0
0
0
0
Te xtiles
0
5
0
0
5
C lothing
0
0
0
0
1
Leather and footw ear
0
0
0
0
0
W ood and w ood prod ucts
0
3
1
0
4
P aper and printing
0
10
3
4
18
C oke ovens refined petroleum and
nuclear fuel
C hem icals
0
0
0
0
0
0
17
3
3
22
N on m etal products
0
30
2
1
33
M etals
0
12
1
0
13
M etal products
0
34
1
0
36
E ngineering
0
7
1
1
8
E lectronics
0
7
1
1
9
3175
26
1
3
3205
0
8
1
2
11
E nergy and w ater
0
23
14
16
53
C onstruction
0
6
4
9
20
S ervices
0
212
55
239
506
3175
404
90
292
3961
M anufacturing
Transport equipm ent
O ther m anufacture
A ll industries
Indirect
Induced
Total
0
3
3
(2) Input-Output Analysis
Input Output Analysis - Overview
• Input-Output techniques = one method of
modelling a regional or national economy
– input flows to each sector (purchases)
– output flows from each sector (sales)
– captures how each sector relates to all others
incl. households, government + external trade.
Functions of an Input-Output Table
• Descriptive framework showing the absolute
and relative sizes of sectors and
relationships to other sectors at a given
time
• Predictive tool, showing the response of the
economy to internal and external shocks
Components of a completed table
• Transactions table/matrix
– Shows monetary value of intra- and interregional trade emanating from each industry.
– Outputs are recorded along the rows
– Inputs are recorded in the columns
• Technical coefficients table/matrix
– Derived form the transactions table
– Shows money values of inputs required by
sector x from each other sector, to produce
one unit of output
Simple Transactions Table
IN P U T S P U R C H A S E D B Y :
A G R IC .
M ANUF.
F IN A L D E M A N D S E C T O R S :
S E R V IC E S
LABOUR
GOVN.
EXPORTS
IN V E S T .
GROSS
OUTPUT
OUTPUT
A G R IC .
20
40
0
20
0
20
0
100
M ANUF.
20
20
10
75
10
55
10
200
0
40
10
25
20
5
0
100
HOUSEHOLD
S E R V IC E S
40
45
70
5
0
0
0
160
GOVN.
S E R V IC E S
10
15
5
0
0
0
0
30
IM P O R T S
IN T O T H E
R E G IO N
10
40
5
0
0
0
5
60
100
200
100
125
30
80
15
650
S E R V IC E S
PAYM ENTS
TO:
GROSS
IN P U T S
Complex Transactions Table
Predicting with an I-O Table
• Most predictions involve scaling of all or part of
the table, thus assuming
– Leontief-type production functions
• no input substitution (right angle isoquants)
– No changes in technology
– Marginal spending patterns for the sectors are equal
to the average spending patterns
– Perfectly elastic supply of inputs (and hence output)real prices are unresponsive to demand changes =
implies no capacity constraints
Iterating the Table 1
• Calculating technical coefficients
– Manufg buys £40 of inputs from agriculture
– Manufg’s total gross inputs equal £200
• General formula - technical coefficient
40
 0 .2
–
200
– Where: i=row number, j=column number
X=gross outlay
a ij 
x ij
X
j
Iterating the Table 2
• The technical coefficients tell us the size of
the direct effects of any shock (immediate
supply chain effects)
• We also need the indirect and induced
effects…
– e.g. Manufacturing expands (exogenous reason)
• It demands inputs from other sectors
– Hence, other firms expand and demand inputs
+ consumer spending rises.
Iterating the Table 3
• These further effects can be summed and
added to the direct effect to give the total
effect on all sectors of the initial shock
• This can be done efficiently on a computer
using matrix algebra techniques, allowing
production of sectoral multipliers
• Multipliers can be produced for output,
income and employment
Employment Multipliers
Analysis of Inter-linkages
(3) The Durham Model
North East Regional Input-Output Accounts
Components
• 111 Industries and product groups
• For each industry data is available on
–
–
–
–
–
Output and GVA
Capital expenditure
Business size
Worker headcounts
FTE workers
• FTE workers by industry can be disaggregated into
– 7 Qualification groupings
– 22 Occupation groupings
Components
• For each industry data is available on
– Goods exports by 14 EU countries, 7 other overseas
areas, and ‘other’ (UK regions)
– Service exports, overseas and ‘other’ (UK regions)
– Imports from overseas and ‘other’ (UK regions)
• Income and spending for 11 household groups
(SOC classification plus unemployed and retired)
• Spending patterns of domestic and overseas
tourists
• Spending patterns of local and national
government
Schematic Diagram
Rest of UK
Sub-regional
breakdowns
Trade
Rest of World
(inc. breakdowns)
Industrial clusters
North East industrial
sectors - production and
sales
Households (regional
population)
Government (local and
central)
Capital investment
Qualifications
Occupations
Applications
• Anatomy of the regional economy (static
picture or ‘snapshot’)
• Measurement and analysis of structural
change
• Identification and analysis of industrial
clusters and supply chains
• Impact analysis
• Forecasting/scenario exploration
Ongoing Work
• Sub-regional analysis – available soon
• Briefing reports (R.E.S. Priority Sector action
planning, key clusters, projections; in conjunction
with NERIP, ONE and other regional partners)
• Environmental accounts
– Environment agency (REWARD)
•
•
•
•
Energy use
Air pollution
Water use
Waste arising
Example: Food and Drink
• Gross output
£1525m
– Meat processing
– Fish and fruit processing
– Dairy products
– Grain milling and starch
– Animal feed
– Baking and confectionery
– Beverages
18%
15%
10%
2%
1%
38%
16%
Example: Food and Drink
• Exports
– EU 14
£39m (60% to France, Ireland &
Spain)
– Non EU
£12m (50% to Western Europe)
– Other UK regions £864m
– Reminder is sold within the region
Example: Food & Drink
A 10% expansion of the sector
Additional Gross Output Generated ( £ m )
E
ce
s
er
vi
S
ct
io
n
C
on
st
ru
ne
rg
y
an
d
W
at
er
ur
in
g
y
M
an
uf
ac
t
ec
on
da
r
ar
y
rim
P
S
Fo
od
an
d
D
rin
k
180
160
140
120
100
80
60
40
20
0
Total £214 million
Gross output = Gross Value Added (~Profits +
labour costs) + Intermediate Purchases
Example: Food & Drink
A 10% expansion of the sector
Additional Gross Value Added ( £ m )
ce
s
Se
rv
i
ct
io
n
Co
ns
tru
En
er
gy
an
d
W
at
er
ur
in
g
y
an
uf
ac
t
M
ar
y
Pr
im
Se
co
nd
ar
Fo
od
an
d
Dr
in
k
70
60
50
40
30
20
10
0
Total £88 million
Example: Food & Drink
A 10% expansion of the sector
Additional Full-Time Equivalent Workers
2500
2000
1500
1000
500
0
od
o
F
d
an
in
Dr
k
im
r
P
y
ar
g
s
n
ry
er
e
o
t
in
i
a
c
r
t
a
d
c
vi
tu
n
r
W
u
c
r
d
co
fa
Se
st
n
e
u
n
a
S
o
an
y
C
g
M
er
n
E
Total 3178 FTEs
Example: Food & Drink
A 10% expansion of the sector
Additional FTEs by Qualification Level
1000
800
600
400
200
unclassified
No
qualification
other'
qualification
GCSE A-C
or equiv
GCE A-level
or equiv
HE
qualification
Degree or
equiv
0
Total 3178 FTEs
Example: Food & Drink
• Additional results could be generated for
– Occupational groupings
– Self-employment
– Business size bands (< >50)
– Imports
– Interactions between data
• GVA per FTE
• Others?
References
• Theory
• Armstrong and Taylor (latest edition), Regional Economics &
Policy
• Ch. 1 Regional income and employment determination
• Ch 2 The input-output approach to modelling the regional
economy
• Multiplier application
• Lincoln, Stone & Walker (1995), ‘The Contribution of
Newcastle’s Higher Education Sector to the Local
Economy’ Northern Economic Review, 1995, issue 24