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INPUT-OUTPUT MULTIPLIER DISTRIBUTIONS FROM PROBABILISTIC PRODUCTION PATHS
Abstract
In the standard Leontief input-output model, a single dominant technology is assumed in the production of a particular commodity. However, in the real world, quite similar commodities are produced by firms with vastly different technologies. In addressing this limitation, the Probabilistic Production Path model (PPP) is used to investigate both the method of production and identity of the producer. An important feature of the PPP model is the consideration of the effects that heterogeneous technologies and dissimilar trade patterns have on the properties of the distribution of input-output multipliers. The derivation of the distribution of output multipliers is generalized for discrete probabilities based on market shares. Due to the complexity of the generalized solution, a simulation model is used to approximate the multiplier distribution. Two basic assumptions in input-output analysis are relaxed to permit a more robust analysis of the distributional properties. First, the assumption that there is a single dominant technology for a commodity is removed. This is accomplished by classifying dissimilar technologies into separate industries. Second, the market shares assumption in the industry-based input-output technology model is relaxed. This is handled by interpreting a firm's market share of a commodity as the probability that a unit increase in demand for that commodity will be produced by that firm. In short, the PPP model is able to trace all possible and probable ways a commodity can be produced, where the model takes into account all direct and indirect suppliers of resources. Results of the model show that the distributional properties of the multipliers are unpredictable, with the majority of the distributions being multimodal. Typically, the mean of the multipliers lies in a trough between two modes. Multimodal multiplier distributions were found to have a tighter symmetric interval than the corresponding standard normal confidence interval. Therefore, the use of the normal confidence interval appears to be sufficient, though overstated, for the construction of confidence intervals in the PPP model.
Subject Area
Economic theory
Recommended Citation
KONECNY, RONALD THOMAS, "INPUT-OUTPUT MULTIPLIER DISTRIBUTIONS FROM PROBABILISTIC PRODUCTION PATHS" (1987). ETD collection for University of Nebraska-Lincoln. AAI8717260.
https://digitalcommons.unl.edu/dissertations/AAI8717260