A Study on the Final Demand-Final Output Model and the Economically Induced Effect

Abstract

The Input-Output(IO) model is widely and extensively used in real-world applications and employed in a variety of different areas since it was developed by Wassily Leontief(1906-1999) in the early 1930s. Recently, Gim and Kim(2009) built an Output-Output(OO) model based on the concept of output requirements for output, in comparison to the ΙΟ model. The newly proposed OO model can be readily applied, for example, to the impact analysis for output advantageously and effectively without worrying about the consecutive connection and overestimation problems in the ΙΟ model.<BR> On the basis of the latest research results, the specific objectives of this paper can be summarized as follows.<BR> (1) We analyze the interdependence relationships between final demand ?, total output χ, and final output ο and compare the characteristics and usefulness of the models, such as ΙΟ model, ΟΟ model, and final demand-final output(FF) model, based on a new circulation system of production between variables(?, χ, ο).<BR> (2) We derive meaningful and important economic interpretations from the output requirements matrix for final demand of final output(C<SUB>g</SUB>, C<SUB>f</SUB>), resulting from the decomposition by factors in the Leontief inverse C<SUB>f</SUB>, in the FF model newly developed by the author.<BR> (3) We propose the various cause-and-effect equations which can compute the economically induced effects through the relationships between cause and effect variables. By using the matrix C<SUB>g</SUB>C<SUB>f</SUB> which has the meaning of multi-sector multiplier, we can easily get many different types of the induced effect, which is necessary for solving economic problems and modeling real applications.