International Input-Output Analysis

Measuring the globalization of industrial linkages

by INOMATA Satoshi ・ OKAMOTO Nobhiro

The input-output (I-O) table is a statistical table developed by American economist Wassily Leontief. The table records the flows of goods and services using the transaction values between industries. It shows for each industry what kinds of products are purchased with what amount as inputs to produce its output (the column perspective), or to which industries / Final Demand sectors the product is supplied for further use (the row perspective). The type of analysis based on the I-O table is called input-output analyses.

Industry A Industry B Final Demand Total Output
Industry A 30 15 25 70
Industry B 20 40 20 80
Value Added 20 25
Total Input 70 80
Industry A → Industry A 30 units
Industry B → Industry A 20 units
Industry A → Industry B 15 units
Industry B → Industry B 40 units

Figure 1. Schematic image of an input-output table

In the face of globalizing economies, industrial linkages are now spreading beyond national borders. Let us consider the case of the Japanese automobile industry. Even though the final assembling stage takes place within Japan, the industry may procure some of the parts and components from overseas; for example, car bodies from Korea or tires from Thailand, and so on. These countries, however, may also import foreign sub-parts and materials for producing their own products; say, Chinese steel to be used for the production of Korean bodies, Malaysian rubber for Thai tires, and so on. In Figure 1, simply replacing “Industry A” with “Country A” will give the format of an international I-O table showing the industrial transactions across countries. Our data, the Asian International Input-Output Table, focuses on the Asia-Pacific region for its country coverage.

I-O analysis has served as an analytical tool for one of the main topics of interest in development economics. In contrast to Nurkse’s Balanced Growth Theory, which states that all industries should develop evenly and simultaneously, Hirschman advocated Unbalanced Growth in which the economic development should be driven by the growth of key industrial sectors. In the backdrop of this, I-O analysis contributed to the identification of key industries for the countries of concern. Also, the so-called “Leontief Paradox” was observed as an important and counter-intuitive finding of I-O analyses on the issues of trade and development, showing that the U.S.A. did not necessarily hold a comparative advantage in the capital-intensive industry, as had been previously considered.

Although academic interest in I-O analysis temporarily regressed in the 1980s due to the stagnation of microeconomic theories, the recent development of Spatial Economics from the 1990s onwards brought international I-O analysis to wide attention as a crucial analytical tool for the spatial interdependence between countries.