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Are Input-Output Coefficients Really Fixed?

Author

Listed:
  • Marc Jim M. Mariano

    (CSIRO)

  • George Verikios

    (CSIRO and Griffith University)

  • Kenneth W. Clements

    (Business School, The University of Western Australia)

Abstract

It is standard practice to treat input-output (I-O) coefficients as fixed. We show this is unwarranted and offer a simple way of allowing for variable coefficients. Using 25 years of IO tables for Australia, we present prime facie evidence that coefficients change substantially. We show how a CES approach can be used to predict future values of the coefficients. Coefficients are fixed when the CES parameter 𝜎, the elasticity of substitution, is zero, a restriction mostly not supported by the Australian tables. Finally, using various values of 𝜎 in CGE simulations establishes that taking coefficients as fixed has misleading economic implications.

Suggested Citation

  • Marc Jim M. Mariano & George Verikios & Kenneth W. Clements, 2023. "Are Input-Output Coefficients Really Fixed?," Economics Discussion / Working Papers 23-06, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:23-06
    Note: MD5 = ea1eaf98028dc48d01f60b52ee27c76b
    as

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    File URL: https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2023/DP%2023.06_Mariano%20Verikios%20and%20Clements.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Input-output analysis; index numbers; elasticity of substitution; CGE modelling;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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