Input-output analysis

“An input-output model is a quantitative economic technique thatcaptures inter-industry transactions. It is based on the idea that outputs fromone sector in the economy become the inputs to another. For example, in orderto build houses, a construction company will buy building materials fromsuppliers. The technique of Input-output analysis is originally created byWassily Leontief (1965).

Input-output table

Based on the urban development plan an Input-output table is created(see figure below). This table is used to calculate the infinite circulation ofcapital through inter-industry transactions (indirect effects) andinternalizing the wages and transactions of households (induced effects). Sincein each round capital flows out of the system (taxes, import and wages), theimpact becomes gradually smaller and tends to zero in the end. This results inthe “so-called” Leontief multipliers.

Table: Concept of an input-output model

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Multiplier effects

The multipliers of theinput-output model provide an indication of what the indirect and inducedeffects are of an extra unit of expenditure (the direct impact).

There are two main types ofmultipliers:

• Type I: is the multiplierof the indirect effects (compared to the direct impulse). For example, if anurban project development of 1 million euro leads to an additional 0.5 millioneuro of indirect production, the type I multiplier is 1.5;
• Type II: is the multiplierof the induced effects (compared to the direct impulse). For example, if anurban project development of 1 million euro generates an additional consumptionspending by employees of 250.000 euro, the type II multiplier is 1.25.