IDEAS home Printed from https://ideas.repec.org/a/taf/ecsysr/v36y2024i2p319-335.html
   My bibliography  Save this article

An extension of the hypothetical extraction method: endogenous consumption and the armington treatment of imports

Author

Listed:
  • Ana-Isabel Guerra
  • Ferran Sancho

Abstract

The hypothetical extraction method (HEM) is the tool of choice for identifying underlying economic interdependencies. It provides critical information to policymakers regarding the strategic role of different sectors. However, the standard implementation of the HEM does not include the impact that falls on the price structure as a result of the substitution between domestic and imported products that takes place after the extraction of a sector or industry, in this case. We propose to overcome this limitation by extending the HEM using an Armington-Leontief model with endogenous consumption. Unlike the perfect substitution assumption typical of the standard HEM, the Armington assumption with endogenous consumption implies that the shift from domestic inputs to imports affects the cost functions. Therefore, both quantities and prices become endogenous in the ‘post-extraction' equilibrium. We also argue that HEM indicators should be expanded beyond the typical output-related indicators, i.e. value-added, employment, or pollutant levels, so that summary indices of the type more commonly used in economics, such as welfare indicators, are used. We implement this novel approach using the latest input–output data for Spain in 2016.

Suggested Citation

  • Ana-Isabel Guerra & Ferran Sancho, 2024. "An extension of the hypothetical extraction method: endogenous consumption and the armington treatment of imports," Economic Systems Research, Taylor & Francis Journals, vol. 36(2), pages 319-335, April.
    • Handle: RePEc:taf:ecsysr:v:36:y:2024:i:2:p:319-335
    DOI: 10.1080/09535314.2023.2213392
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09535314.2023.2213392
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09535314.2023.2213392?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ecsysr:v:36:y:2024:i:2:p:319-335. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/CESR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.