Iowa State University



Class notes 8 September 2020Incomes and employment changes are completely dependent on export changesThe nonbasic sector has no independence from the basicAssumes that labor and capital prices are fixed – it tells us little about the characteristics of labor in a region.Ignores the reality of cross hauling. Other than industrial structure, it tells little about the communities we are studying.Assume demand and supply functions are identical locally with the nation LQ>1 means specialization. Nursing homes. Rural retail may produce >1 LQs, e.g., gasoline stations.Understates exports if you do not have extensive disaggregation of the data.It is not a general theory of community developmentAspatialMany communities remain stable even after basic employment declinesWhen communities grow, they become more self-sufficient. Import lessY=C+X-I =-OtherIntro to Economic Impacts and ConceptsJobs = a + MBY$= a + MBMay not be appropriate for marginal changes.Learn more about our economy than just basic / nonbasic or export oriented or local orientedCharacteristics of industrial production in a region. Allow us to understand inter-industrial transactions. In short, who buys what? Who sells what?Input-output models. Inputs = commodities, services, production factors needed to produce a goodOutputs = finished products that are sold to regional demand and to external demand (final demand).Inputs = OutputsIO models Inter-industrial (and inter-institutional) transactionsTransactions outside of the region (both what is exported and what is imported in detail)Transactions that are satisfying final demands.In so doing, they produce sets of useful multipliersTerms:Inputs:Intermediate purchases – purchase of goods and services necessary to produce goods and services.Value added = labor income (wages, salaries, plus benefits), owner income, investor income, indirect tax payments (associated with production)Final payments:VACapitalImportsOutput side:Intermediate sales – go to within-region industrial demand.Final demand sales:HouseholdsGovernmentsCapitalExportsIO DevelopmentHistorical thread:Francois Quesnay – early 1700s Tableau Economique. Used farms as a foundation for analysis. Demonstrated how successive “rounds” of economic activity on the farm generated wealth.Leon Walras late 1800s. Elements of Pure Economics. Origin of general equilibrium theory. Credited with developing the first set of simultaneous equations that described economic activity. Inter-industrial inter-dependence was demonstrated by his models.Wassily Leontief – Developed a general theory of production. Produces the first U.S. IO tables of the economy. 1919, 1929, 1941.William Myernick: -- Developed IO methods for popular use among academics in the U.S. Did much to advance methods and theoretical foundations. ................
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