This staff research note describes the uses and abuses of input-output tables, with the aim of improving future utility of what is an important but sometimes misused resource. In doing so, the note examines a number of novel approaches to effective use and some examples of abuse.
Novel uses include:
- an environment-economic input-output framework;
- analysis of the composition of exports; and
- foreign value-added levels in nations’ exports.
Abuse primarily relates to overstating the economic importance of specific sectoral or regional activities. It is likely that if all such analyses were to be aggregated, they would sum to much more than the total for the Australian economy. Claims that jobs ‘gained’ directly from the cause being promoted will lead to cascading gains in the wider economy often fail to give any consideration to the restrictive nature of the assumptions required for input-output multiplier exercises to be valid. In particular, these applications fail to consider the opportunity cost of both spending measures and alternate uses of resources, and may misinform policy-makers.
Input-output data and tables on which multipliers are based may be extremely useful in economic analysis. They can provide valuable information about the structure of economies that is not available from other frameworks. Used appropriately, input-output tables provide a powerful tool for reporting and analysing the industrial structure of an economy. They also form the foundations for constructing a range of economic models which, with due attention to their underpinning assumptions, can be used to more properly assess the impacts of policy changes.