Abstract
This paper is aimed at measuring industrial interdependence using a symmetric input-output table complied for the Sri Lankan economy for 2006 to find an effective development strategy for the country. The input-output model is constructed for thirty aggregated industrial sectors of the economy as a whole. The output, value added and income multipliers reveal that there are five key industries of the Sri Lankan economy. These are: (1) recreational, cultural, sporting services and other services; (2) manufactured products of food, beverages and tobacco sector; (3) air transport services; (4) rubber & plastic products; and (5) metallic, non-metallic and mineral products. The employment multipliers are highest in: (1) real estate services; (2) electrical products; (3) petroleum & chemical products; and (4) rubber & plastic products industries. We found that five industries (sectors) have strong upstream and downstream vertical integrations with the rest of other sectors in the economy. The results reveal that higher prices charged on the petroleum & chemical products would probably result in higher costs to most of other sectors in the economy relatively equally. As ‘mining and quarrying, electricity, gas and water’ sector has strong downstream linkages to other sectors in the economy, higher prices (or taxes) charged on these products also result in higher costs to most of other sectors in the economy. The findings of the study reveal that prioritizing industries should be done based on an input-output analysis rather than just depending on the information provided by percentage of contribution in output and value addition to GDP by the sectors. However, the results should be interpreted very carefully as the impact of some sectors such as education difficult to be practically measured in monetary terms based on an input-output model.
Highlights
A better understanding of the structure of a national economy is vital for the identification and implementation of an effective development strategy as it emphasizes the need of allocating more resources for sectors that generate more output, income, value-additions, employment, and have linkages with the domestic economy (Frédéric 2010)
Type II multipliers are always larger than its Type I counterpart implying that each industries produces an increased amount of output in the economy to meet the consumption induced demand
The employment multipliers are highest in the sectors: real estate services, electrical products, petroleum & chemical products, and rubber & plastic products industries
Summary
A better understanding of the structure of a national economy is vital for the identification and implementation of an effective development strategy as it emphasizes the need of allocating more resources for sectors that generate more output, income, value-additions, employment, and have linkages with the domestic economy (Frédéric 2010). The input-output model was developed by Professor Wassily Leontief in the late 1930s based on Walras’ general equilibrium theory to data for the American economy. In recognition of his pioneering work, he was awarded by the Nobel Prize in Economic Science in 1973. Rameezdeen, Zainudeen and Ramachandra (2005, 2008) examine the significance of the construction sector and its relationship between other sectors of the economy based on input-output tables compiled in the period from 1970 to 2000. They argue that construction sector is the key in the economy as the backward and forward linkage measures were significant (above average) in this sector out of forty-eight sectors of the economy in 2000
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