Input-Output Analysis, Linear Programming and Modified Multipliers

Input-Output Analysis, Linear Programming and Modified Multipliers
Erqian Zhu, Man-Keun Kim* , Thomas R. Harris

Abstract: The input-output (IO) analysis explores changes in final demand through the
regional economy using multipliers. However, it isn’t flexible to investigate the regional
impact from the capacity limitations which are directly imposed on production, not final
demand. This is because the multipliers are changing with exogenous restrictions on
production. Conventionally, the IO analysis is performed assuming exogenous production
restrictions being the changes in final demands or assuming the sector being exogenous
sector like the final demand. If researchers or policy makers are interested in only
economic impacts from production restrictions, there is no need to look into the modified
multipliers. The modified multipliers should be considered when researchers and policy
makers attempt to analyze the compensation of impact, especially recovery of loss using
government expenditure. We suggest that the linear programming is a useful and efficient
tool to derive modified multipliers and estimate correct regional impact from the policy
changes.

Key Words: Input-Output Analysis, Multipliers, Regional Impact Analysis
JEL Classifications: C67, R15, R5

Introduction

The input-output (IO) analysis is well-known in regional economics and has been applied
to numerous economic issues for a long time. The IO method is based on the

’Corresponding author (mkim@cabnr.unr.edu; phone 774-784-1447)

Erqian Zhu is Research Assistant, Man-Keun Kim is Research Assistant Professor, and Thomas R. Harris is
Professor and Director, Department of Resource Economics, University Center for Economic
Development, University of Nevada - Reno, respectively.

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