Final Demand Categories Research Articles

A Hybrid‐Unit Energy Input‐Output Model to Evaluate Embodied Energy and Life Cycle Emissions for China's Economy

SummaryWe develop a hybrid‐unit energy input‐output (I/O) model with a disaggregated electricity sector for China. The model replaces primary energy rows in monetary value, namely, coal, gas, crude oil, and renewable energy, with physical flow units in order to overcome errors associated with the proportionality assumption in environmental I/O analysis models. Model development and data use are explained and compared with other approaches in the field of environmental life cycle assessment. The model is applied to evaluate the primary energy embodied in economic output to meet Chinese final consumption for the year 2007. Direct and indirect carbon dioxide emissions intensities are determined. We find that different final demand categories pose distinctive requirements on the primary energy mix. Also, a considerable amount of energy is embodied in the supply chain of secondary industries. Embodied energy and emissions are crucial to consider for policy development in China based on consumption, rather than production. Consumption‐based policies will likely play a more important role in China when per capita income levels have reached those of western countries.

China's non-CO2 greenhouse gas emissions: Inventory and input–output analysis

In contrast to the ever-increasing focus on China's CO2 emissions, little attention has been given to its non-CO2 greenhouse gases (GHGs). Based on the latest released official GHG emission data, this paper presents an inventory and embodiment analysis of the non-CO2 GHG emissions covering CH4, N2O, HFCs, PFCs and SF6 by the Chinese economy in 2005. The total direct non-CO2 GHG emissions from economic sectors amount to 1368.5Mt CO2-eq, of which CH4 contributes 848.4Mt, N2O 356.8Mt and F-GHGs 163.3Mt. Responsible for 93.2% of the total emissions are the three sectors of Agriculture, Coal Mining and Dressing and Chemicals. Exports, urban consumption and capital formation derive the major fractions of embodied emissions for final demand. Rural and urban consumption are both non-CO2 GHG emission intensive, having the largest embodied emission intensities among all final demand categories. The impact of international trade on China's non-CO2 GHG emissions is significant. The total emissions embodied in exports are 487.0Mt CO2-eq, equivalent to 35.6% of the total domestic emissions. Prominently, the re-exported emissions amount to 135.3Mt CO2-eq due to the processing trade. Textile and Garments and Other Fiber Products, Leather, Furs, Down and Related Products are the top two net embodied emission export sectors. While China's non-CO2 GHG emissions are expected to increase steadily in the future, both the direct emissions from on site production and the embodied emissions induced by final consumption and international trade need to be addressed and targeted to inform effective mitigation policies.

The socioeconomic drivers of China’s primary PM2.5 emissions

Primary PM2.5 emissions contributed significantly to poor air quality in China. We present an interdisciplinary study to measure the magnitudes of socioeconomic factors in driving primary PM2.5 emission changes in China between 1997–2010, by using a regional emission inventory as input into an environmentally extended input–output framework and applying structural decomposition analysis. Our results show that China’s significant efficiency gains fully offset emissions growth triggered by economic growth and other drivers. Capital formation is the largest final demand category in contributing annual PM2.5 emissions, but the associated emission level is steadily declining. Exports is the only final demand category that drives emission growth between 1997–2010. The production of exports led to emissions of 638 thousand tonnes of PM2.5, half of the EU27 annual total, and six times that of Germany. Embodied emissions in Chinese exports are largely driven by consumption in OECD countries.

Revisiting drivers of energy intensity in China during 1997–2007: A structural decomposition analysis

The decline of China's energy intensity slowed since 2000. During 2002–2005 it actually increased, reversing the long-term trend. Therefore, it is important to identify drivers of the fluctuation of energy intensity. We use input–output structural decomposition analysis to investigate the contributions of changes in energy mix, sectoral energy efficiency, production structure, final demand structure, and final demand category composition to China's energy intensity fluctuation during 1997–2007. We include household energy consumption in the study by closing the input–output model with respect to households. Results show that sectoral energy efficiency improvements contribute the most to the energy intensity decline during 1997–2007. The increase in China's energy intensity during 2002–2007 is instead explained by changes in final demand composition and production structure. Changes in final demand composition are mainly due to increasing share of exports, while changes in production structure mainly arise from the shift of Chinese economy to more energy-intensive industries. Changes in energy mix and final demand structure contribute little to China's energy intensity fluctuation. From the consumption perspective, growing exports of energy-intensive products and increasing infrastructure demands explain the majority of energy intensity increase during 2002–2007.

What is driving CO 2 emissions in a typical manufacturing center of South China? The case of Jiangsu Province

Investigating CO 2 emissions of China's manufacturing centers contributes to local and global CO 2 mitigation targets. This study considers Jiangsu Province as a representation of manufacturing centers in South China. Effects of material efficiency improvements, technology development, consumption structure changes and consumption volume growth in Jiangsu Province on its CO 2 emissions during 1997–2007 are investigated using structural decomposition analysis based on environmental input–output table. In order to reduce CO 2 emissions, Jiangsu Province should not only rely on material efficiency improvements and technology development, but also rely on consumption structure changes. For consumption structure changes in detail, Jiangsu Province should not only focus on fixed capital formation and urban residential consumption, but also focus on international and intranational imports and exports. For the implementation of material efficiency improvements and technology development, Jiangsu Province should focus on technology innovation and international technology transfer. For the implementation of consumption structure changes, Jiangsu Province should mainly focus on identified sectors for each separate final demand category: five sectors for urban residential consumption, three sectors for fixed capital formation, four sectors for international exports, five sectors for intranational exports, three sectors for international imports and four sectors for intranational imports.

Material implication of Chile's economic growth: Combining material flow accounting (MFA) and structural decomposition analysis (SDA)

Over the last three decades, the economic integration of the Chilean economy into global markets has been taking place at a rapid pace. For example, in 1986, exports represented 29% of GDP while in 1996 they had increased to 38% of GDP. This period of time was characterized by strong economic growth with an average annual growth rate of about 10%. From a physical perspective, material requirements more than doubled from 220 to 500 million tons of direct material inputs (DMI) during the same decade (the rate of material growth requirements was around 13% per year). The main objective of this study is to explain the changes in DMI by using a structural decomposition analysis (SDA). The changes in material flow accounting (MFA) were broken down into the effects caused by changes in resource use per unit of output (material intensity effect), changes between and within sectors (structural change effect), changes in the composition of final demand (mix effect), changes due to shifting shares of domestic final demand and export categories (category effect) and finally changes in the overall level of economic activities (level effects). The results, as a percentage of the total level of DMI used in 1986, indicate that economic growth was the major source of material changes (109%). The material intensity and category effects explained 31% and 14% of the increase, respectively. The increase in the material intensity is mainly due to a declining quality of ores in copper production. However, these components were partly compensated by the structure (− 14%) and mix (− 13%) effects. Therefore, for a Southern American country such as Chile, the main causes of these changes in material consumption have been a combination of the nature of economic growth along with an increase in export production and material intensity of production.

Women's and Men's Contributions to Satisfying Consumers' Needs: A Combined Time Use and Input–Output Analysis

The traditional input–output table (IOT) identifies the intermediate flows between industries, the branches' contributions to satisfy final demand and the primary inputs needed for production. While industries play a key role in the field of input–output analysis, the structure of employees remains more or less unconsidered. The present study aims to combine particular information regarding employees' working time with traditional instruments of input–output analysis. In so doing, employees (and the corresponding paid working hours) are separated by industries, educational achievements and gender. This, in turn, allows for the identification of women's and men's contributions to satisfying different categories of final demand. In total, men's paid working hours significantly exceed women's labour input. However, societies rely likewise on paid and unpaid work. Therefore, the study finally accounts for the field of unpaid work, which – in Germany – is still dominated by women.

Allocating ecological footprints to final consumption categories with input–output analysis

We present and discuss a method that allows the disaggregation of national Ecological Footprints by economic sector, detailed final demand category, sub-national area or socio-economic group. This is done by combining existing National Footprint Accounts with input–output analysis. Calculations in the empirical part are carried out by using supply and use tables for the United Kingdom, covering the reporting period 2000. Ecological Footprints are allocated to detailed household consumption activities following the COICOP classification system and to a detailed breakdown of capital investment. The method presented enables the calculation of comparable Ecological Footprints on all sub-national levels and for different socio-economic groups. The novelty of the approach lies in the use of input–output analysis to re-allocate existing Footprint accounts, in the detail of disaggregation by consumption category and in the expanded use of household expenditure data. This extends the potential for applications of the Ecological Footprint concept and helps to inform scenarios, policies and strategies on sustainable consumption. The method described in this paper can be applied to every country for which a National Footprint Account exists and where appropriate economic and environmental accounts are available. The approach helps to save time in data collection and improves the consistency between Ecological Footprint estimates for a particular human society from different researchers. For these reasons, the suggested methodology includes crucial steps on the way towards a standardisation of Ecological Footprint accounts.

Exemption versus zero rating: A hidden problem of VAT

We examine the difference between exemptions and zero rating under a consumption based VAT in a Numerical General Equilibrium Model. To allow for a better understanding of the accruing efficiency effects, we first develop a method to convert the nominal VAT rates into effective tax rates on categories of final demand. Then we show how these effective tax rates can be used to perform a gradual transition from exemption to zero rating.

Simulation of a Policy Aimed at the Reduction of Wood Use in the Sudan

A rectangular economic input-output table for the Sudan is presented, based on nine sectors, thirty-seven commodities, six primary inputs, and seven final demand categories. Four possible models of intermediate consumption are derived by using linear programming and entropy maximizing. The table is then linked to a coefficient representing wood use per unit of output in the Sudanese economy. A policy aimed at a reduction in wood use is tested by simulating the introduction of more efficient charcoal stoves into urban households. Implementation of the policy would lead to a significant reduction in total wood used, from 88 km2 to 194 km2 per year, depending on which of the four models for intermediate consumption is utilized. Reallocation of the resulting savings by households into energyintensive commodities, however, reduces the effectiveness of the policy by as much as 48%.

PRICE ANALYSIS AND A SYSTEM OF PRICE STATISTICS

For some considerable time the interest in price statistics has mainly been focused on their use as “intermediate goods”. The requirements of a system of price index numbers which have to be established in this connection are largely in the field of statistical coordination (integration of statistics on quantities, values and prices).Recently the inflation problem has given rise to an increased interest in price statistics as “final goods”. A meaningful analysis of inflation will devote attention to the relation between input prices and output prices. In this article several versions of an analysis of prices of final demand categories based on an ordinary Leontief input‐output scheme are presented and the needs for price statistics are discussed. In fact a self‐contained system of price statistics emerges from the price analysis.There is a difference in the nature of the price index numbers required in compiling input‐output tables in constant prices (Paasche) and that in the case of price analysis (Laspeyres). However the need for price observation runs largely parallel because in both cases the same detailed information on price developments will probably be used.Price analysis gives the possibility of a step‐by‐step approach in building up a system of price index numbers.

The generation of residual flows in Norway: an input-output approach

The generation of 35 different kinds of residuals is analyzed by an input-output approach for the Norwegian economy in 1970. The general tendency in the computations is that the final demand category, Export, especially export from the sectors Pulp and paper and Metals and minerals, is the main contributor of the flow of residuals generated each year.

A Cost Minimization Approach to Import Demand Equations

THE foreign sector in conventional macroeconomic models has not been properly integrated with behavioural relationships in the rest of the economy. The aggregate producing sector is usually depicted as employing primary factors, capital and labor, to produce a single output which simultaneously satisfies the demands of consumers, producers, governments, and foreigners. In this one-sector model, imports are implicitly assumed to be either final goods which enter the utility functions of consumers, or intermediate goods which are separable from primary factors in the productive process. The first assumption conflicts with empirical evidence that the bulk of international trade occurs in intermediate goods, while the second assumption involves a substantive restriction on the form of the technology which ought to be examined and justified empirically rather than assumed a priori. Most goods entering international trade require further processing before delivery to final demand. This processing requires the services of domestic primary factors of production which could be employed elsewhere. An important issue for public policy concerns the effect of trade and trade barriers on the distribution of factor income. If final demand can be satisfied either by employing domestic primary factors or by importing materials, then changes in import prices will, in general, alter the competitive returns to the primary factors. The usual assumption adopted for empirical work, namely that imports are final goods with no close domestic substitutes, rules out any income distribution effects resulting from a change in import prices. Previous investigators have estimated import demand equations by regressing the logarithm of a measure of imports on the logarithm of national income and the logarithm of the ratio of the price of imports to the price of domestic value added.' While this functional form has the advantage that the parameters measure the price and income elasticities of demand, it is not derivable from an underlying model of optimal behaviour, and it assumes that imports are final goods which are separable from all other commodities in the utility function of the consuming sector. Until very recently most empirically tractable functional forms have imposed separability restrictions a priori. Thus, even if one were to proceed from micro-economic foundations by assuming a constant elasticity of substitution functional form to model the taste or technology of the decision unit, the assumption of separability between imports and alternative factors or commodities would constitute a maintained hypothesis that could not be tested.2 The one output specification provides no way of explaining changes in the relative prices of various categories of final demand. It will only be appropriate for explaining the composition of inputs if the technology is separable with respect to a partitioning between inputs and outputs. In this case, the cost minimizing input bundle is independent of the composition of output, and, for purposes of explaining factor demands, one can pretend that a single output exists. Separability between inputs and outputs implies that marginal rates of substitution between pairs of factors are independent of the composition of output, and marginal rates of

Evaluating the economic impact of government expenditure by department, an application of input output analysis

Economists have long recognized the employment, income and distributional effects of variations in the volume of public expenditures, but only recently have they begun to pay attention to the effects of changes in the composition of these expenditures.* In these studies, government is treated as an ultimate buyer and its purchases are traced directly to particular industries through an input-output model. However. these studies have generally neglected the fact that variations in government expenditures entail changes in industrial purchases as a consequence of changes in government functions (e.g. Education. Health. Transportation and Communications, etc.).+ In other words. government purchases from industries normally occur under different programs, and, consequently. the impact of changes m the mdustrlal composition of government expenditures ought to be analyzed in terms of changes in the composition of government programs. Since government budgetmg procedures allocate revenue to departments (e.g. Department of Health. Department of Civil Service. etc.) that undertake the expenditures and since there exists no unique way in which department expenditures are grouped under functions. the analysis of the impact of government expenditures IS pursued in terms of the impact of expenditures by the various departments. In fact. input-output tables do not usually report the final demand components of government expenditures according to government departments and the final demand entrles must be reclassified m this way.f In this paper, the Ontario mpu-output table is the starting point. The final demand categories of Provincial government expenditures are adjusted to corre-

EDUCATED MANPOWER BEHIND NORWAY'S EXPORTS, DOMESTIC CONSUMPTION, AND INVESTMENT*

This paper contains some of the main results of an investigation into the use of educated manpower in Norwegian industries. An input‐output model with labour inputs specified by education is presented. Per unit of final delivery, Norwegian exports in 1960 used relatively less labour, and less educated labour, but more capital (measured by depreciation) than the other categories of final demand. But when the use of labour is compared to the income created by the final deliveries, the differences are much smaller.

PRICES AND PRICE ANALYSIS IN THE FRAMEWORK OF THE NATIONAL ACCOUNTS

The paper discusses the role of prices in the framework of the new System of National Accounts (SNA) in terms of three major uses: (1) deflation, (2) price indicators, and (3) price analysis. Following a brief review of the price and quantity measures required by the new SNA with its emphasis on deflation of commodity flows and input‐output accounts, in addition to the more conventional deflation of final demand categories, the paper discusses some of the conceptual, methodological and data problems involved in implementing the various uses of prices in the new SNA.Implementing the use of prices as deflators depends, in part, on the concept of output selected (national versus domestic; gross versus net), and which of six concepts of valuation, ranging from purchasers'value to true factor cost, is used. Some of the difficulties in deflating nonmarket flows (e.g., interplant transfers) and industry value added, based on the double deflation method, are discussed.In concept price deflators, which have shifting weights, cannot be used as price indicators, which should have fixed weights. In practice, this is often disregarded and the deflators are used as price indicators. The paper support the SNA recommendation for the development of price indexes with fixed weights to be used as price indicators, in addition to the implicit price deflators. Research in the United States indicates that differences in weights can result in different price measures for various subperiods, components of demand and sector output.Periodic revisions in weights to provide more current fixed weights for price and quantity indexes in each subperiod may minimize the problem but it introduces a new problem—lack of comparability with the constant price tables in the SNA which have fixed weights for the entire period.The new SNA provides a comprehensive and integrated framework for price analysis including the analysis of the structure of aggregate price changes, the industrial origin of final demand prices, and the impact of price change in one sector of the economy on the rest of the economy. Some major gaps which need to be overcome in order to implement the use of the new SNA for price analysis include the development of industry capital stock estimates, separate estimates of proprietors’income, reconciliation of value added and distribution share estimates, and the development of a wide variety of information to supplement the conventional input‐output tables in the SNA.Implementing the various objectives of price measures within the framework of the accounts will require a number of improvements in existing price measures and expanding the scope of coverage. “List” prices should be superseded by “transactions” prices and better techniques and data need to be developed to provide for quality adjustment of prices. Coverage will need to be expanded to include services, freight rates, trade margins, government expenditures, and also fill in gaps for many manufactured products. Finally, where possible, use of unit values as price indexes or deflators, e.g., imports and exports, should be replaced by direct price measures.

SOME IMPLICATIONS OF THE ECONOMIC IMPACT OF DISARMAMENT ON THE STRUCTURE OF AMERICAN INDUSTRY

SUMMARY To investigate some of the major structural problems which might arise from disarmament, an input-output model was constructed specifying three full-employment patterns of end product deliveries which might reasonably be expected for the year 1970. The purpose of the model was to measure the impact of varying compositions of final demand accompanying a reduction in defense expenditures on the production capabilities of sixty-six processing sectors. Each disarmament pattern was stipulated with respect to a specific level and composition of defense expenditures in conjunction with a compensating policy offset. The relative impact on total industry requirements was discerned by comparing the derived output levels of each industry under the alternative policy formulations. An analysis of the computational results lead to the following five major conclusions: 1. A fifty per cent reduction in defense outlays, offset by compensating increase in expenditures within either the private or public sector, will affect the industries producing weapons substantially but will have little effect on supporting industries. 2. The magnitude of the shift in final demand postulated was not large enough to pose structural problems. 3. The derivation of the indirect requirements indicated that the processing sectors are quite consumer oriented. Indeed, this dependence was so strong that substantial shifts between other major categories of final demand were dampened considerably. 4. Industry sensitivity to variations in final demand patterns was diminished markedly by the pattern of accompanying intermediate demands. 5. The effect of public policy was not significant to the output levels of industries supporting the military oriented industries.

The Deflation of Value Added

W ITHIN recent years several lines of adI,/'VTvance in quantitative economic research have converged to focus attention upon the deflation of value added and, where the data relating to the desired social accounting concept are available, gross product originating by industry. The common proximate goal of such endeavors has been to secure measures of the contribution made by various industries or sectors of the economy to real national product. Estimates of real product on an industry basis are held to be useful on a number of counts. They may be aggregated to provide a check on the results of the deflation of gross national product by expenditures on goods and services in the major categories of final demand. Moreover, not only do they offer a means of analyzing the industrial composition of historical and contemporary changes in total real and aggregate productivity, but they form a basis for the incorporation of industrial detail into current economic projections.' Working toward these ends, the Canadian Dominion Bureau of Statistics has prepared annual and quarterly indices of industry net output by deflating census value added. The indices have been used to project estimates of gross domestic product by industry of origin available for bench-mark dates.2 The United States has not been inactive on this front. A cooperative governmental project, undertaken at the request of the Interagency Subcommittee on Production and Productivity (Office of Statistical Standards, Bureau of the Budget) has carried out exploratory work developing annual estimates of constant dollar gross product originating by industry.3 In still another quarter, American economic historians have recently been presented with estimates of major sector real commodity in the United States during the latter two-thirds of the nineteenth century. These were prepared by Robert Gallman through the deflation of (state and federal) census value added data.4 In the light of these developments wlhich not only portend, but seem certain to encourage, continued pursuit of the industry real product approach, it will perhaps be useful to consider the implications of the accepted statistical procedure for deflating value added and gross product originating. As it is usually defined, current dollar value added is the value of gross sales, at producers' prices, less the cost of raw materials (including fuel and energy) purchased from other industries (and/or firms within the same industry), at delivered prices. Gross product originating can be defined as the market value of the industry's output, less the expenditure on purchases of all intermediate goods and services.5 It is a direct step from the current value definition to the derivation of constant dollar value added, CDVA, by the ith industry in year t as