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 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, ...

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