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
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_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 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:
- 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_needfor comparison with the original economic output
- Assume that all imports are domestically produced. Create and compare
x_needto the economic output
x_own_producethe country would have if all imports were produced domestically. Get
x_own_producefrom a final demand vector
f_own_producethat we get by assuming that all imports are domestically produced. Get
f_needby removing exports and assuming that domestic consumers only spend according to their living-wage-budget. We can then get
f_need, and finally compare
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.