Comparative Analysis of Sectoral Multipliers of Input-Output Model and Social Accounting Matrix

Abstract

The present study is to indicate that the comparison between sectoral production multipliers of an input-output (I/O) model and a social accounting matrix (SAM) framework is almost impossible without taking into account accounting balances and theoretical considerations. Theoretically, the I/O model provides the Leontief’s production function, on the basis of which sectoral output multiplier can be derived. In a SAM, however, the combined Leontief-Keynes models dominate multipliers commonly known as accounting multiplier matrices. The inter-industry blocks of these matrices cannot be called sectoral output multipliers as in an I/O model, rather they are known as sectoral supply multipliers. Therefore, the two sectoral multipliers are of different nature and cannot be compared for assessing sectoral performance and sectoral policy analysis of the key sectors. In the light of these evidence, this important question can be posed that whether it is possible to compare sectoral multipliers of the two approaches or not? To investigate this, two databases were used, namely the conventional I/O tables and SAM. The data for both sets of tables, prepared by the Research Center of the Islamic Parliament for the year 2011, were aggregated into 21×21 sectors. The overall results indicated that sectoral output multipliers of a conventional I/O model grossly overestimated multipliers of key sectors while sectoral supply multipliers of a conventional SAM underestimated multipliers of the key sectors. To solve the problem and make sectoral multipliers of the two approaches comparable, deduction of imports has been proposed. The overall findings showed that sectoral output multipliers of a conventional I/O model were overestimated about 1.284 unit on average and sectoral supply multipliers of a conventional SAM were underestimated about 1.245 unit on average. Considering the domestic I/O model and SAM, however, it was observed that sectoral output multipliers is on an average 1.202 in domestic IOM whereas in domestic SAM sectoral output multipliers is on an average 1.237. Consequently, the two approaches were comparable in sectoral policy analysis.