Understanding the Shortcomings of Commodity‐based Technology in Input–Output Models: an Economic‐Circuit Approach

Abstract

The Make-Use Model serves as a basis for most national accounting systems as the System of National Accounts (SNA) and is acknowledged as the most suitable model for interregional analysis. Two hypotheses are traditionally made featuring either industry-based technologies (IBT) or commodity-based technologies (CBT). While industry-based technologies can be easily interpreted in terms of a demand-driven economic circuit, it will be shown that: (1) commodity-based technologies cannot be interpreted as a demand-driven economic circuit because this involves computing the inverse of a matrix (the matrix of industry output proportions), which is either impossible or generates negative terms; (2) the only way to obtain a plausible explanation of CBT is to convert it into a supply-driven model. This provides a new reason for rejecting CBT: either IBT is adopted but violates Kop Jansen and ten Raa's axioms, or CBT is chosen but must be converted into a poor or unrealistic supply-driven model. Copyright Blackwell Publishers, 2004

Negatives in symmetric input–output tables: the impossible quest for the Holy Grail

“…ten Ra (1988) has understood that negative terms are not due to errors in the data but to the model. The present author (de Mesnard 2004) has shown that, if the model is interpreted in terms of circuit, it cannot be demand-driven as usual and the product-technology assumption corresponds to the so-called supply-driven Ghosh model, largely criticized (Dietzenbacher 1997;de Mesnard 2009). where x i is the output of industry i (x i > 0 for any i), w j the value added of industry j (w j > 0 for any j), q i the total production of product i (q i > 0 for any i) and e i is the amount of product i sold to final demand (e i > 0 for any i).…”

The Problem of Negatives Generated by the Commodity Technology Model in Input–Output Analysis: A Review of the Solutions

“…For instance, de Mesnard [6] stated that the commodity technology hypothesis has to be rejected since it breaks the linkages of commodity flows internal to the industries. No information is available to determine which industry supplies a positive variation in final demand of a particular commodity.…”

Econometric Analysis of European Carbon Dioxide Emissions Based on Rectangular Supply-Use Tables

“…In many cases, the preferred solution has been to make the supply -use system square by aggregation, which leads to the loss of important information on detailed input breakdowns of certain industries. The appearance of negatives has also led other authors to talk about the implausibility of the two methods, especially the product technology assumption (see de Mesnard, 2004).…”