interrelationship between sectors in the economy and how each is affected by a change in
the final demand for a sector’s output. The IO analysis can be summarized as the
multiplier analysis, which outlines individual changes in final demand through the
regional economy over short periods of time (Schaffer, 1999, p33). As elaborated in the
following section, various types of multiplier exist. The output multiplier refers to an
increase in the final demand can lead to an even greater increase in output. The
employment and income multipliers refer to the concepts that the increase in numbers of
employees or household income will lead to an increase in total value of output,
employment, and income as well.
However, the IO analysis or the multiplier analysis is not flexible to investigate
the regional impact from the policies or capacity limitations which are directly imposed
on production, for example, limiting production in power generation sector to reduce
greenhouse gas emissions for meeting the national or international requirement, or
government’s ban on meat production due to food safety issues for instance BSE, or
reduction in cattle production due to limitation of public land grazing in Western US in
Fadali, Harris and Alevy (2007). This is because it is expected that the multipliers are
changing when the exogenous production restrictions exist. We call these as the
modified multipliers.
Conventionally, the IO analysis is performed assuming that exogenous production
restrictions are the changes in final demands or the sector being restricted is treated as
exogenous sector like the final demand. If researchers or policy makers are interested in
only economic impacts from these restrictions, there is no need to look into the modified
multipliers. The modified multipliers should be considered when researchers and policy