Input-Output Analysis

views updated


Input-output analysis is a methodology for investigating production relations among primary factors, intersectoral flows, final demands, and transfers. Primary and intermediate factors are the "inputs," and final demands and transfers are the "outputs." Aggregate input values equal "gross national income" and aggregate output "gross domestic product." Consequently, input-output is best conceptualized as a map, or flowchart, of intersectoral activities that underlie the standard aggregate measures of national income and product. It permits analysts to quantify precisely and assess the matrix of intersectoral relationships, often hidden or overlooked in more aggregative methodologies. Sometimes this serves an informative purpose. For example, Soviet leaders suppressed data on the USSR's military-industrial production level, and the delivery of weapons to final demand, but this information was contained in its input-output tables, and could be ferreted out by Western scholars and intelligence agencies in principle. Input-output tables also shed light on the internal consistency of Soviet statistics. If these data were a patchwork, either of truths or lies, latent inconsistencies should be visible in the flow relationships.

Soviet economists were concerned with the latter application of the technique, and viewed input-output analysis as a useful adjunct to "materials balance" planning. Gosplan (the state planning agency) constructed its plans from the late 1920s onward on a sector-by-sector basis, taking inadequate account of intersectoral dependencies. Soviet input-output tables, first introduced for 1959, provided a sophisticated check, enabling planners to discern whether adjustments were required in specific instances to their simpler procedures.

The construction of input-output tables is a laborious task that could not be completed swiftly enough to displace material balancing as the method of choice for developing annual and five-year plans. Nonetheless, it did serve as a valuable tool for perspective planning. The great strength of the methodology was its lucid theoretical foundation, which permitted analysts to grasp the hidden assumptions affecting the reliability of their forecasts. Wassily Leontiev, Nobel Laureate and the father of inputoutput analysis, hypothesized that production technologies for practical purposes could be conceived as approximately linear homogeneous functions, with constant returns to scale, and rectangular isoquants, even though he knew that this would not always be true. The working assumption implied that both "socialist" and "capitalist" economies were strongly determined by their technological structure (supply side economics) because factor proportions were fixed and could not be altered by competitive negotiations. Nor did planners and entrepreneurs have to fret about diminishing returns to proportional investment, because a doubling of all inputs would always result in a doubling of output. Some economists contended before the demise of communism that this strong determinism proved that markets were superfluous, but this is no longer fashionable. During the early twenty-first century input-output in post-Soviet Russia serves primarily as a guide to indicative perspective planning, that is, a tool used by policy makers to evaluate various development scenarios. Whereas it once was an adjunct to material balance planning, it became a tool for managing market-based development.

See also: gosplan


Carter, Anne. (1970). Structural Change in the American Economy. Cambridge, MA: Harvard University Press.

Leontief, Wassily. (1951). The Structure of the American Economy 19191939, 2nd ed. New York: Oxford University Press.

Miernyk, William. (1965). The Elements of InputOutput Analysis. New York: Random House.

Rosefielde, Steven. (1975). The Transformation of the 1966 Soviet InputOutput Table from Producers to Adjusted Factor Cost Values. Washington: G.E. TEMPO.

Treml, Vladimir; Gallik, Dimitri; Kostinsky, Barry; and Kruger, Kurt. (1972). The Structure of the Soviet Economy: Analysis and Reconstruction of the 1966 InputOutput Table. New York: Praeger Publishers.

Steven Rosefielde