What are Input-Output Models?

Input-output models are based on statistical information about the flow of goods and services among various industries.

This information provides a comprehensive and detailed representation of the economy for a given year.

An input-output model consists of three components:

  1. A table showing the cost of inputs such as goods and services, labour and capital, consumed by each industry in the production process. This is called the input, or use, matrix.
  2. A table showing which goods and services are produced by each industry. This is called the output, or make, matrix.
  3. A table showing which goods and services are available for consumption by final users. This is called the final demand matrix. The final demand matrix includes goods and services that are locally produced, as well as those that are imported from other regions.

These data, together with supplementary information (for example, tax rates by commodity) are combined into a single model of the economy which can be used to determine how much additional production is generated either by a change in the demand for one or more commodities (goods or services), or by a change in the output of an industry.