What is Input-Output Analysis?
Input-Output Analysis is an economic modeling framework that maps the flow of goods, services, and resources between different sectors of an economy. It helps policymakers, researchers, and businesses understand how changes in one sector affect others.
Definition
Input-Output Analysis is a quantitative method that uses interindustry tables to show how the output of one industry becomes the input of another, illustrating economic interdependencies.
Key Takeaways
- Shows how industries are interconnected.
- Helps predict economic impacts of policy or market changes.
- Based on input-output tables created by national statistical agencies.
Understanding Input-Output Analysis
Developed by Wassily Leontief, Input-Output Analysis illustrates how industries depend on each other for goods and services. For example, the automotive industry requires steel, electronics, rubber, and energy—each produced by different sectors.
The method uses input-output tables that quantify these relationships. Analysts can simulate how changes—such as an increase in demand for cars—impact upstream suppliers and downstream industries.
It is widely used in national accounting, supply chain modeling, and economic impact studies.
Real-World Example
Governments use input-output models to estimate the economic impact of infrastructure projects, such as highways or power plants, by analyzing how spending spreads across sectors.
Importance in Business or Economics
Input-Output Analysis helps decision-makers:
- Understand supply chain interdependencies.
- Forecast economic ripple effects.
- Evaluate the impact of policy, investment, or shocks.
It is especially useful in environmental economics, trade policy, and industrial planning.
Related Terms
- Economic Modeling
- Supply Chain Analysis
- National Accounts
Sources and Further Reading
Quick Reference
- Purpose: Map interindustry relationships.
- Tool: Input-output tables.
- Outcome: Predict economic impacts.
Frequently Asked Questions (FAQs)
What is the main benefit of input-output analysis?
It reveals how industries depend on each other and how changes in one sector affect the entire economy.
Is input-output analysis still used today?
Yes, especially in environmental analysis, supply chain management, and policy evaluation.
Who developed input-output analysis?
Economist Wassily Leontief, who received the Nobel Prize for this work.
