Input-Output Analytical Tables and Multipliers 2019
In August 2023, NISRA’s Economic Accounts Team published detailed data on the supply and use of commodities, inter-industry flows and the structure of the NI Economy for 2019.
The next stage was the development of experimental NI specific Input-Output Analytical Tables (IOATs) for 2019 , published in September 2023. These provide a framework for modelling economic impacts and changes to the domestic economy. Furthermore, IOATs allow the derivation of economic multipliers which can be used for economic planning, analysis and forecasting.
This bulletin provides a brief overview of IOATs and their associated multipliers, along with examples to help the reader understand how to use them. It discusses how the information within IOATs can be used to inform economic analysis, how to interpret the results of that analysis, the limitations of this approach and how the information can be used in further economic accounts production.
1. Introduction
IOATs describe and quantify the interdependent relationship between inputs and outputs within an economy irrespective of whether the products have been produced by the primary industry or by other industries as their secondary output. The IOATs show separately the consumption of domestically produced and imported goods and services, providing a theoretical framework for further analysis of the structure of the economy, its composition and the effect changes in demand will have on the economy.
This means from an analytical perspective, users can estimate the impact on the economy of an increase or decrease in spending in one sector and the subsequent impact on the NI economy over the reference period, which in this article is 2019. NISRA has published Gross Value Added (GVA), output and full-time equivalent employment multipliers derived from the 2019 IOATs at the industry level.
It is important to note that these statistics are designated experimental, to reflect their status as new official statistics that are undergoing evaluation and are subject to revision. As a result, users should adopt a cautious approach to their use. That said, the methodology is in line with the European System of Accounts 2010 [note 1], thereby allowing comparison with other countries adhering to the same standard.
Supply-Use Tables are the starting point for the production of the IOATs and all other Input-Output analyses are derived from them. More information on Supply-Use Tables and how they are compiled can be found on the NI Economic Accounts site. .
2. Input-Output Analytical Tables, Multipliers and Effects
The Supply-Use tables serve not only statistical but analytical purposes, especially when they are transformed into analytical Input-Output tables [note 2]. The analytical tables present a version of the Use table in either an industry by industry or product by product format, as opposed to the product by industry basis of the Supply-Use tables. Industry multipliers for 2019 have been published in September 2023. The representation of the Supply-Use tables in the Input-Output framework allows the interdependence of industries to be formally analysed as each industry is shown as intermediate purchasers of their own and other industries output. A key output from this analysis is the production of multipliers which help to analyse direct relationships within the economy. Multipliers capture the idea that a change in the economy does not act in isolation, it ripples through other parts of the economy. Multipliers can help us understand the total size of that ripple. Some industries are clearly more “interconnected” than others.
There are three main types of impacts on the economy.
• Direct effect (Type I): This is the immediate effect caused directly by the change in final demand e.g. if there is an increase in final use for a particular product, we can assume that there will be an increase in the output of that product, as producers react to meet the increased demand;
• Indirect effect (Type I): This is the subsequent effect caused by the consequent changes in intermediate demand i.e. as producers increase their output, there will also be an increase in demand on their suppliers and so on down the supply chain; and
• Induced effect (Type II): This is the effect attributable to the ensuing change in compensation of employees and other incomes, which may cause further spending and hence further changes in final demand e.g. as a result of the direct and indirect effects the level of household income throughout the economy will increase as a result of increased employment. A proportion of this increased income will be re-spent on final goods and services.
Type I multipliers cover direct and indirect effects only. These multipliers can potentially underestimate the effect on the economy as they do not estimate induced effects. In addition to direct and indirect effects, Type II Multipliers also cover induced effects.
Multiple methodologies can be used to calculate Type II multipliers, however the approach we have used is the Miller and Blair Type II methodology [note 3].
An example of how these effects flow through the economy is shown in Figure 1 below. This shows what would be expected to happen if Central Government decided to buy an additional £100m of services, based on an aggregated 2x2 2019 Input-Output Analytical table.
Figure 1: Example showing Direct, Indirect, and Induced impacts combining to create the overall Type II impact, based on an aggregated 2x2 2019 Input-Output Analytical table.
There are a range of different multipliers that can be employed to measure the effect on different policy targets. Two of the more common are Output multipliers and GVA Multipliers. Each sector has a unique multiplier because each has a different pattern of purchases from firms in and outside the region.
Note 2:
Further discussion on this transformation process is available within the NI Economic Accounts Methodology Guide
Note 3:
Miller, R., & Blair, P. (2022). Input-Output Analysis: Foundations and Extensions (3rd ed.). Cambridge: Cambridge University Press.doi:10.1017/9781108676212
3. Industry based Input-Output Analytical Tables and Multipliers
The NI Industry multipliers can be used to estimate the effect a direct change in Output, GVA, or Employment for a particular industry will have on the NI economy as a whole due to a change in final demand. It is important to note multipliers are subject to a number of limitations, some of which are identified below.
Output:
The output multiplier is the ratio of direct
plus indirect output changes (and induced if Type II multipliers are
used) to the direct output change.
Using 2019 figures, for an increase in final demand of
£5M for the ‘59-60 Motion Picture, Video and TV
Programme Production, Sound Recording and Music Publishing Activities
and Programming And Broadcasting Activities’ Industry, the
direct impact on this industry will be a requirement to increase its
total output by £5m, to meet the additional final demand. A change in
final demand will always equal the change in direct output as goods and
services must be produced in order to be sold.
To estimate the subsequent indirect effects on the industry’s suppliers,
we multiply the direct impact (£5m) by the Type I industry output
multiplier [note 4] for this
industry grouping (1.31) giving a total of
direct plus indirect impact on output of £6.57m.
Using the Type II industry output multiplier for this industry grouping
(1.88), we can estimate the total of the
direct, indirect and induced impacts on output by multiplying it by the
direct impact (£5m) to give £9.42m. We can then work out the
induced impact on output by subtracting the direct plus indirect impact
worked out using the Type I multiplier above (£6.57m) from the total of
the direct, indirect and induced impacts using the Type II multiplier
(£9.42m), resulting in an induced impact on output of
£2.85m.
The output effects is the direct plus indirect
(and induced if Type II effects are used) output impact for every £1m
change in final demand for that sector.
This means that an increase in £5m of final demand for
the ‘59-60 Motion Picture, Video and TV Programme Production,
Sound Recording and Music Publishing Activities and Programming And
Broadcasting Activities’ Industry is estimated to support
£6.57m of output using Type I effects (Direct and
Indirect), and £9.42m of output using Type II effects
(Direct, Indirect and Induced).
For output, these two definitions (multipliers and effects) produce
the same numbers, because a £1m increase in final demand always leads to
a £1m increase in output.
Note 4:
NI Industry based output Multipliers are available on the NI Economic Accounts results page.
GVA:
The GVA multiplier is expressed as the ratio of the
direct and indirect (and induced if Type II multipliers are used) GVA
changes to the direct GVA change. In other words, if you have the change
in GVA for the industry, the GVA multiplier can be used to calculate the
change in GVA for the economy as a whole. This multiplier should
therefore be multiplied with the £ change in GVA.
A hypothetical change in demand for the “10 Food
Products” industry group that leads to a £10m increase in GVA
for that industry therefore has a direct impact of £10m. Using 2019
figures, to estimate the subsequent indirect effect on this industry’s
suppliers given the increase in GVA, we multiply the direct GVA impact
(£10m) by the Type I GVA multiplier [note 5] for this industry grouping
(2.41) giving a total of direct plus indirect
impact on GVA of £24.09m.
Using the Type II industry GVA multiplier for this industry grouping
(3.60), we can estimate the total of the
direct, indirect and induced impacts on GVA by multiplying it by the
direct impact (£10m) to give £36.04m. We can then work out the
induced impact on GVA by subtracting the direct plus indirect impact
worked out using the Type I multiplier above (£24.09m) from the total of
the direct, indirect and induced impacts using the Type II multiplier
(£36.04m), resulting in an induced impact on GVA of
£11.95m.
The GVA effects describes the amount of GVA
directly and indirectly (and induced if Type II effects are used)
supported in Northern Ireland due to a £1m increase in
final demand. This multiplier should therefore be multiplied with the £
change in final demand.
This means that an increase in £1m of final demand for
the “10 Food Products” Industry is estimated to support
£0.56m of GVA using Type I effects (Direct and
Indirect), and £0.83m of GVA using Type II effects
(Direct, Indirect and Induced).
Note 5:
NI Industry based GVA Multipliers are available on the NI Economic Accounts results page.
Employment Multiplier:
The employment multiplier is the ratio of direct plus indirect (and
induced if Type II multipliers are used) employment changes to the
direct employment change.
For example if an increase in final demand for a firm operating in the
‘27 Electrical Equipment’ Industry led to the firm
employing an additional 20 Full Time Equivalent Employees
(FTEs), the direct impact on employment will be 20
FTEs.
Using 2019 figures, to estimate the indirect employment effects i.e. the
effects on suppliers of that industry to the economy, we multiply the
direct employment impact (20 FTEs) by the Type I industry employment
multiplier [note 6] for the
grouping (1.97) giving a total of direct plus
indirect employment impact of 39.4 FTEs. By subtracting the
direct FTE increase, we can identify the additional
indirect number of FTEs supported throughout the NI economy as
19.4.
Using the Type II industry employment multiplier for this industry
grouping (3.19), we can estimate the total of
the direct, indirect and induced employment impacts in FTEs by
multiplying it by the direct impact (20) to give 63.7
FTEs. We can then work out the induced employment impacts in
FTEs by subtracting the direct plus indirect impact worked out using the
Type I multiplier above (39.4) from the total of the direct, indirect
and induced impacts using the Type II multiplier (63.7),
resulting in an induced employment impact of 24.3 FTEs
supported throughout the NI economy.
The employment effects is the direct plus
indirect (and induced if Type II effects are used) employment impact for
every £1m change in final demand for that sector.
This means that an
increase in £1m of final demand for the ‘27 Electrical
Equipment’ Industry is estimated to support 6
FTEs across the economy using Type I effects (Direct and
Indirect), and 9.6 FTEs across the economy using Type
II effects (Direct, Indirect and Induced).
Generally, you will most likely see multipliers rather than effects used
for employment due to data availability.
Note 6:
NI Industry based employment Multipliers are available on the NI Economic Accounts results page.
4. Limitations of Input-Output Analytical Table and Multipliers
As evidenced in this article, IOATs are a useful tool, which provide a framework for modelling economic impact and changes to the domestic economy. However the IOATs are based on a strict set of assumptions, which for the purposes of estimating any subsequent economic impacts, are assumed to remain constant. More information on these assumptions and limitations can be found on the NI Economic Accounts site.
5. Conclusion
The purpose of this bulletin is to provide a brief overview of the outputs of NISRA’s Economic Accounts Project, in particular IOATs and their multipliers. Notably, the IOATs provide a framework allowing the modelling of economic impacts to NI based on the composition and structure of the economy in 2019. This may be of particular interest to policy colleagues, as it allows the straightforward quantification of the economic impact to NI as a result of variances in demand across industries and products. Furthermore, as the methodology is in line with the European System of Accounts 2010, it is possible to compare Northern Ireland with other countries or regions adhering to the same standard.
This bulletin identified some of the limitations to the impact of IOATs and the statistics, which users are advised to bear in mind when using them. It is also noted that these are designated as experimental, reflecting their status as new official statistics undergoing evaluation and are subject to revision. Nevertheless, this type of economic analysis, if used responsibly, is a very powerful addition to the analytical toolkit. The IOATs for Northern Ireland is an exciting area for NISRA, we continue to engage on and are happy to advise any users interested in learning more about the outputs of the Economic Accounts Project and their application.
Consultation
NISRA has launched a consultation on proposed changes to a range of
statistical outputs and this output is one of those affected.
We are proposing that the Structure of the Northern Ireland Economy –
Supply Use Tables and related Input-Output Analytical tables for the
year 2020 be delayed until the second quarter of 2024. Further
information on the consultation and how to respond can be found on the
consultation page
6. Further Information
Issued by:
Economic and Labour Market Statistics Branch,
Northern Ireland Statistics and Research Agency
Department of Finance
Email: economicstats@nisra.gov.uk
Additional Reading
Further information on the background to the NISRA project to develop the Supply-Use tables can be found on our website
Other useful sources of information relating to National Accounts and the Supply-Use framework include:
• Eurostat Manual of Supply, Use and Input-Output Tables
• European System of National and Economic Accounts (ESA 2010)
• UN Handbook on Supply and Use Tables and Input Output-Tables with Extensions and Application
• ONS Series of National Accounts articles
• Scottish Government Input-Output Methodology Guide
Statistics Contacts:
Martin Irvine
Email: martin.irvine@nisra.gov.uk
Tel: 028 90529 231