Input-Output Models

Developed by Wassily Leontief in 1936, input-output models are an alternative to simple economic base and Keynesian approaches to modeling an economic system. Essentially, the models are used to describe and analyze forward and [Page 1600]backward economic linkages between industries. They compile the industrial activity of an economic system into an input-output table that is built around a matrix of monetary transactions. These transactions can be recorded by industry or sector, which are groups of industries involved in similar production processes.

The basic principle of input-output models is that the products sold (outputs) from one industry are purchased (inputs) in the production process by other industries. Therefore, it is plausible that a change in one interindustry linkage can affect the entire system of linkages. For example, ...