List of figures page ........................................... ix
List of tables .................................................. x
Preface ........................................................ xi
Glossary ..................................................... xiii
1. Introduction ................................................. 1
1.1. The definition of economics ............................. 1
1.2. Mathematical preliminaries .............................. 2
1.3. Constrained maximization ................................ 4
1.4. Linear analysis ......................................... 7
1.5. Input-output analysis .................................. 11
Exercises .............................................. 12
References ............................................. 12
2. Input-output basics ......................................... 14
2.1. Introduction ........................................... 14
2.2. Price changes .......................................... 17
2.3. Value relations ........................................ 19
2.4. Quantity relations ..................................... 22
Exercises ................................................... 23
References .................................................. 24
3. Multiplier effects .......................................... 25
3.1. Introduction ........................................... 25
3.2. Cost-push analysis ..................................... 25
3.3. Demand-pull analysis ................................... 26
3.4. Consumption effects .................................... 27
3.5. Employment multipliers ................................. 30
3.6. Miyazawa inverses ...................................... 34
Exercises ................................................... 35
References .................................................. 36
4. Linear programming .......................................... 37
4.1. Introduction ........................................... 37
4.2. Inequality implications ................................ 37
4.3. Dependent and independent constraints .................. 39
4.4. The main theorem ....................................... 41
4.5. Complementary slackness ................................ 43
4.6. Non-degenerate programs ................................ 45
4.7. Active variables ....................................... 47
4.8. Marginal productivity and sensitivity .................. 50
Exercises ................................................... 52
References .................................................. 53
5. Are input-output coefficients fixed? ........................ 54
5.1. Introduction ........................................... 54
5.2. Techniques and the role of demand ...................... 55
5.3. Selection of techniques ................................ 57
5.4. The substitution theorem ............................... 60
5.5. A postscript ........................................... 63
5.6. An application ......................................... 63
Exercises ................................................... 64
References .................................................. 64
6. The System of National Accounts ............................. 65
6.1. Introduction ........................................... 65
6.2. A bird's eye view ...................................... 65
6.3. The System of National Accounts ........................ 67
6.4. Enlargements ........................................... 71
6.5. Trade .................................................. 72
6.6. Value-added tax ........................................ 77
6.7. Gross national product ................................. 79
6.8. Imputation of VAT to industries ........................ 82
6.9. Social Accounting Matrices ............................. 83
Exercises ................................................... 84
References .................................................. 86
7. The construction of technical coefficients .................. 87
7.1. Introduction ........................................... 87
7.2. Secondary products ..................................... 88
7.3. Different numbers of commodities and sectors ........... 93
7.4. Other inputs ........................................... 96
Exercises ................................................... 98
References .................................................. 98
8. From input-output coefficients to the Cobb-Douglas
function .................................................... 99
8.1. Introduction ........................................... 99
8.2. Derivation of the macroeconomic production function ... 100
8.3. Substitution .......................................... 102
8.4. Returns to scale ...................................... 103
Exercises .................................................. 107
References ................................................. 107
9. The diagnosis of inefficiency .............................. 108
9.1. Introduction .......................................... 108
9.2. Inefficiency .......................................... 108
9.3. Decomposition ......................................... 112
9.4. Diagnosis of the Canadian economy ..................... 114
9.5. Diagnosis of the Dutch economy ........................ 121
9.6. Robustness of the efficiency measure .................. 122
Exercises .................................................. 123
References ................................................. 123
10.Input-output analysis of international trade ............... 125
10.1.Introduction .......................................... 125
10.2.Partial equilibrium analysis .......................... 127
10.3.General equilibrium analysis .......................... 129
10.4.The gains to free trade ............................... 133
10.5.Distortions ........................................... 136
10.6.Application ........................................... 137
Exercises .................................................. 138
References ................................................. 138
11.Environmental input-output economics ....................... 139
11.1.Introduction .......................................... 139
11.2.Standards, taxes, or rights to pollute ................ 139
11.3.Environmental accounting .............................. 142
11.4.Energy policy ......................................... 142
11.5.Pollution ............................................. 146
11.6.Globalization ......................................... 149
Exercises .................................................. 150
References ................................................. 150
12.Productivity growth and spillovers ......................... 151
12.1.Introduction .......................................... 151
12.2.Total factor productivity growth ...................... 152
12.3.Measurement and decomposition ......................... 154
12.4.Application to the Canadian economy ................... 159
12.5.International spillovers .............................. 160
12.6.Intersectoral spillovers .............................. 162
12.7.Conclusion ............................................ 164
Exercise ................................................... 164
References ................................................. 164
13.The dynamic inverse ........................................ 166
13.1.Introduction .......................................... 166
13.2.A one-sector economy .................................. 167
13.3.The material balance .................................. 168
13.4.Dynamic input-output analysis of a one-sector
economy ............................................... 169
13.5.Multi-sector economies ................................ 171
13.6.Conclusion ............................................ 174
Exercise ................................................... 175
References ................................................. 175
14.Stochastic input-output analysis ........................... 176
14.1.Introduction .......................................... 176
14.2.Stochastics ........................................... 176
14.3.Application ........................................... 178
14.4.Conclusion ............................................ 181
References ................................................. 182
15.Solutions to exercises ..................................... 183
Index ......................................................... 192
Figures
1.1. The feasible region of constraint function g and
two isoquants and the derivative of objective
function ................................................ 5
2.1. Positive and negative products of vectors .............. 16
4.1. The proof of lemma 4.1 ................................. 38
4.2. The scatter diagram of sectors in the capital/value-
added and labor/value-added plane ...................... 49
5.1. Per-worker net outputs ................................. 59
8.1. A production possibility frontier (PPF) ............... 100
8.2. A changing frontier ................................... 101
8.3. Solving the dual program .............................. 102
8.4. Production units at full, partial, and zero
capacity .............................................. 104
10.1.Solving the dual program .............................. 128
10.2.The world production possibilities set ................ 131
10.3.The production possibilities of two countries ......... 134
10.4.The production possibilities of two countries with
two factors ........................................... 136
11.1.Energy substitution value ............................. 145
Tables
6.1. National accounts of the Netherlands, 1989 ............. 66
6.2. Blow-up of U ........................................... 73
6.3. Blow-up of margins, V, VAT and M ....................... 74
6.4. Blow-up of final demand categories ..................... 76
6.5. Blow-up of FC+CF ....................................... 81
6.6. The non-zero items of an economy without production .... 82
6.7. Example of a small open economy ........................ 85
9.1. Current price capital stock, January 1990 ............. 115
9.2. Sector and commodity aggregations ..................... 117
9.3. Sectoral activity levels .............................. 118
9.4. Net exports ........................................... 119
9.5. Shadow prices ......................................... 121
11.1.Profit and environmental impact of production ......... 140
12.1.Frontier productivity growth (FP) and the rate of
efficiency change (EC) ................................ 159
12.2.Frontier productivity growth (FP), by factor input .... 160
12.3.Frontier productivity growth (FP), by Solow residual
and terms of trade effect ............................. 160
12.4.Decomposition of annual TFP growth .................... 162
14.1.Employment multipliers ................................ 179
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