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economic sectors, takes the ad hoc model's
approach to its logical conclusion by representing
the entire economy by a system of simultaneous
equations.
Input±output analysis is a general equilibrium
approach to determining an economic system, and
it has a pedigree stretching back to the time of
Quesnay, who produced the first transactions table
in 1758. The term general equilibrium means that
the model encompasses all of the productive
activities of the economy under study rather than
just the tourism sectors. Models that are selective in
terms of the productive sectors incorporated are
known as partial equilibrium models and tend to
yield significantly lower economic multiplier values.
Although Quesnay's table could hardly be
described as an operational input±output analysis,
it did focus attention upon the industrial interdependencies
that exist within an economy. The
construction of a model that determined multiplier
values was left until Leontief developed an input±
output of the United States economy using 1930s
data. The major issue relating to input±output
analysis is the manner in which the economy is
aggregated into sectors in order to satisfy the
assumptions of linear and homogeneous production
functions, and to provide a level of aggregation
that will be acceptable for the study of tourism's
economic impact.
The technique of input±output analysis may be
considered in two separate stages. First there is the
construction of an input±output table, similar in
structure to that developed by Quesnay. This table,
generally known as a transactions table, may be
seen as being analogous to a set of national
accounts except for the fact that attention is drawn
to the transactions that take place between
industries within the economy �intermediate sales
and purchases) rather than final user transactions.
Although this table is not a model, it provides a
wealth of information to planners and policymakers
because it highlights the economic structure
of the destination. This table also shows the
direct economic effects associated with any change
in final demand. It further circumvents one of the
constant problems surrounding the economics of
tourism in that it allows the pattern of this spending
to determine which sectors are included under the
umbrella title of tourism. The table can be
input±output analysis 311
combined with other data to look at dependencies
and possible supply bottlenecks where some
industries may be working close to their full
capacity.
The second stage of the analysis involves the
conversion of the table into an input±output model.
This action requires the normalisation of the table,
by dividing the value contained in each cell by the
corresponding column total. This process results in
a table of coefficients where the vertical columns
show the production functions of each industry and
if each column is summed it will yield a total of
one. This coefficients table is then subject to the
Leontief inversion routine, which allows the
calculation of the indirect and induced economic
impacts associated with any change in final
demand. The model, because it is a general
equilibrium model, can be used to calculate the
economic impact of any change in final demand
not only in tourism, although the models tend to be
built in order to calculate the economic effects
associated with a specific type of final demand.
Input±output analysis results in the calculation of a
variety of economic multiplier vales. These include
the direct, indirect and induced multipliers relating
to income, employment and government revenue
output, as well as estimating the import
requirements associated with any change in final
demand.
This method of analysis is not without its
limitations and weaknesses. For instance, because
the model is general equilibrium in nature, it
requires detailed information relating to the
expenditures made by businesses in all of the
productive sectors of the economy, not just the
tourism-related sectors. This can make the construction
of the input±output table an expensive
exercise both in terms of time and resources. The
data requirements are extensive and generally
require the implementation of specific business
expenditure surveys in order to determine the
patterns of intermediate purchases. Furthermore, a
variety of assumptions are necessary in order to
accept the results of input±output analyses. These
include that all of the businesses aggregated under
the heading of a single productive sector are
producing their output in an identical manner �i.e.
that production functions are homogeneous). It
also requires the assumption that the production