Backward and Forward Linkages in the Bangladesh Economy: Application of the Social Accounting Matrix Framework

Abstract

A Social Accounting Matrix (SAM) is a generalization of the production relations and extends this information beyond the structure of production to include: (a) the distribution of value added to institutions generated by production activities; (b) formation of household and institutional income; (c) the pattern of consumption, savings, and investment; (d) government revenue collection and associated expenditures and transactions; and (e) the role of the foreign sector in the formation of additional incomes for households and institutions. In particular, the accounting matrix of a SAM identifies the economic relations through six accounts: (1) total domestic supply of commodities; (2) activity accounts for producing sectors; (3) main factors of productions (e.g., labor types and capital); (4) current account transactions between main institutional agents such as households and unincorporated enterprises, corporate enterprises, government and the rest of the world, and the use of income by the representative households; (5) the rest of the world; and (6) one consolidated capital account (domestic and rest of the world) to capture the flows of savings and investment by institutions and the rest of the world, respectively. Social accounting matrices can serve two basic purposes: (i) as a comprehensive and consistent data system for descriptive analysis of the structure of the economy; and (ii) as a basis for macroeconomic modeling. As a data framework, a SAM is a snapshot of a country at a point in time (Pyatt and Thorbecke 1976). To provide as a comprehensive picture of the structure of the economy as possible, a particular novelty of the SAM approach has been to bring together macroeconomic data (such as national accounts) and microeconomic data (such as household surveys), within a consistent framework. The second purpose of a SAM is the provision of a macroeconomic data framework for policy modeling. The framework of a SAM can often help in establishing the sequence of interactions between agents and accounts which are being modeled. A SAM provides an excellent framework for exploring both macroeconomic and multi-sectoral issues and is a useful starting point for more complex models (Robinson 1989). Against this backdrop, this study produces an updated SAM for Bangladesh for 2012 using the newly constructed Input-Output Table 2012, which supplemented with institutional accounts, macroeconomic aggregates, and the Household Income and Expenditure Survey. Using the updated SAM, this study develops the SAM multiplier model and explores the growth impact of injection into selected activities in the economy through that multiplier model.