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Regional Input-Output (Economic) Model

Input-output models are relatively straightforward (and therefore affordable) ways to get a snapshot of the size and nature of a regional economy. It is a well-established way of estimating economic activity and what it loses in accuracy, it makes up in efficiency. Given input output models are essentially a set of calculations based on some vectors and matrices, Goldsim is an effective platform for building them. Moreover, using GoldSim’s powerful scenario manager, input-output tables can be used to test different ‘what if’ scenarios in which investment does or does not occur. With that in mind, having the capacity to run a probabilistic model which associates a probability to the likelihood of an investment occurring extends the capability of the input-output model. Geografia has constructed these models in Goldsim for several dozen different projects to conduct scenario analyses. They are relatively quick to construct, efficient and provide good value-for-money useful model outputs. Using GoldSim dashboards (see image below), the user can quickly build the input parameters for the simulation and view a snapshot of summary results. 

 

 

Methodology

The flow diagram below outlines the basic conceptual influence logic of the model. Input data is used to define the initial, local investment in one or more industries and direct and indirect flow on effects are calculated using a set of multipliers. This model provides a useful snapshot of economic impacts arising from a change in conditions in one or more industry sectors. It is particularly useful when linked to other modules including Geografia’s Scenario Planner's Economy, Housing Capacity and Population modules.

There are several pathways available to estimate the impact of growth in a particular industry. Users can either estimate the total number of jobs or the total initial investment amount and the proportion that is to be directed locally. Multipliers are used to estimate the impact of this investment/job growth across all other industry sectors. Key results from this include gross regional product and the estimated value added by industry sector (see image to right). 

 

 

 

 

 

 

 

 

 

 

Major Projects Module

A module was dynamically linked to the input-output model to evaluate the effect of various major projects in Blacktown City. Figures are provided at the State level and have been adjusted and corrected to account for the features of the Blacktown local government area's economy using the Flegg Location Quotient (FLQ) methodology. Taxable income figures are used as the basis for this. Major changes in the employment profile of the regional economy as a result of the impact of major projects are reflected in interpolated changes to the multipliers.

Using another GoldSim dashboard, the user can specify the type and timing of a major project to see its effect on the local economy (refer to image below). Results are displayed as statistics due to the probabilistic nature of this model.

 

The module also has the capacity to be extended to provide a risk return analysis function that estimates the per capita return on council investment in a specific project. For more information on this model, contact Geografia at info@geografia.com.au

There are also good resources online which explain how input output tables are constructed; their principles; and shortcomings. Links to two useful sites are provided below. 

Australian Bureau of Statistics

OECD.org

References

Leontief, Wassily. “Input-Output Economics.” Second Edition, Oxford University Press, 1986.

Geografia and Essential Economics Pty Ltd. “Addressing Skills and Employment Gaps in Outer Metropolitan Growth Areas.” An Action Plan for the National Growth Areas Alliance, March 2013. Report


 

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