Investigating the Relationship Between the Dynamics of the Structure of Intermediate Consumption and Output of Industries: Cross-Country Analysis

Abstract

This paper examines one of the main prerequisites of the inter-industry balance methodology on the proportional dependence of the output of industries and their intermediate consumption. The statistical base of the study is the world input-output tables collected for the period from 2000 to 2014. According to the results of the work, it was revealed that the prerequisite of a proportional change in the vector of intermediate consumption with a change in output is not consistent. However, significant positive relationships were found between intermediate consumption and the output of industries. On the basis of the identified relationships, we conducted a clustering procedure on industries, where, in particular, clusters with strong, medium, and weak relationships between intermediate consumption and output are distinguished. Thus, the paper proposes to expand the input-output methodology by introducing proportionality coefficients for changes in the intermediate consumption of an industry with a change in its output. Proportionality coefficients are proposed to be obtained on the basis of regression equations built on statistical data from the input-output tables. It should be especially noted that in addition to obtaining point forecasts of intermediate consumption for each industry when its output changes, it is also possible to obtain probability distributions for the gross output of each industry, their value added, wages, taxes, and profits through Monte Carlo simulations based on the constructed regression equations, which will facilitate a scenario analysis of the development of the considered economic system. The results of this work can be useful to executive authorities in planning large state economic projects as well as in assessing the impact of external shocks on the countryʼs economy.