# How to estimate “necessary” economic output using Leontief input-output impact analysis? In particular: how to handle imports

I'm trying to estimate what the "necessary" economic output of a society is using Leontief input-output impact analysis. The data I have available is OECD input-output tables (see link). I'm not a trained economist, so please correct any mistakes you see in my thinking.

My idea for how to make this estimation is the following: proceed with a standard impact analysis and get the Leontief matrix L. Then check how much economic output x_need that remains if we let the consumers spend only a "living-wage budget" proportionally to the different sectors of the economy (so if 50% of spending in the original demand goes to say food, then 50% of the living-wage final demand should also go to food). So basically: calculate x_need by f_need, where f_need is the new final demand vector that has been altered by letting private consumers only spend their living-wage-budget. Then we can compare x_old and x_need to see the differences in economic output.

I hope that this so far is not controversial.

Now here's the question: how do I handle imports (and exports) in the construction of f_need?

I want f_need to represent the final demand of the domestic private consumers when spend precisely their living-wage-budget. Exports can probably simply be removed since they don't provide goods and services to the domestic population. But what about imports? How do I best deal with them in my estimation? I see two general strategies for how to do so:

1. Ignore imports. Alter private domestic consumer according to their living-wage-budget, remove exports, and ignore imports (i.e. don't make any changes in how imports affect final demand f_need). This gives us f_need, which we can use to create x_need for comparison with the original economic output x_old.
2. Assume that all imports are domestically produced. Create and compare x_need to the economic output x_own_produce the country would have if all imports were produced domestically. Get x_own_produce from a final demand vector f_own_produce that we get by assuming that all imports are domestically produced. Get f_need by removing exports and assuming that domestic consumers only spend according to their living-wage-budget. We can then get x_need from f_need, and finally compare x_need with x_own_produce.

I hope that the above is understandable. Let me know what I need to clarify otherwise.

Detailed questions: Which of the two general strategies gives a better estimation? Are there better strategies that I can use to make my estimation?

Any (constructive) feedback is appreciated.