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How to Assess the Direct, Indirect, and Induced Economic Effects of Agriculture The input-output model (I/O) of economics uses a matrix representation of a region's economy to predict the effect of changes in one industry on others and by consumers, government, and foreign suppliers on the economy. History of I/O Wassily Leontief (1905-1999) is credited with the development of this analysis. Leontief won the Nobel Prize in Economic Sciences for his development of this model. Francois Quesnay developed a cruder version of this technique called Tableau économique. The math behind I/O The mathematics of input-output economics is straightforward, but the data requirements are enormous because the expenditures and revenues of each branch of economic activity has to be represented. Isolate the quantity of production that - goes to final demand (cx) - goes to total output (xx) - flows from that industry to other industries

Q=f(K,L) where Q=quantity, K=capital, L=labor Using Leontief coefficients (axy), we manipulate our transactions information into what is known as an input-output table.

Leontief, Wassily W., Input-Output Economics. 2nd ed., New York: Oxford University Press, 1986

How up to date are they? Typically input-output tables are compiled retrospectively as a "snapshot" cross-section of the economy, once every few years. What Input-Output Analysis Can Do: Provides a description of a local economy Input-Output analysis can be used to predict changes in overall economic activity as a result of some change in the local economy What are Multipliers? Multipliers measure total change throughout the economy from one unit change for a given sector. Three Types of Multipliers can be calculated from an I/O Model 1. Output 2. Employment 3. Income Three levels of Multipliers 1. Direct 2. Indirect 3. Induced Explaining the Agriculture Sector

Direct - For a $1.00 change in final demand sales in the local economy, the total direct effects are $1.00 Direct and Indirect - For a $1.00 change in final demand sales in the local economy, the total effects are $1.21 Direct, Indirect, and Induced - For a $1.00 change in final demand sales in the local economy; the total effects are $1.3 Example -Employment Multiplier Agricultures Sector Employment Multiplier = 1.56 When the Agricultures Sector realizes 1 employee change, total employment in the study area changes by 1.56 jobs Example - Agricultures Income Multiplier

Agricultures Sector Income Multiplier = 1.79 When the Agriculture Sector realizes a $1.00 change in income, total income in the study area changes by $1.79 from direct, indirect and induced linkages Caution When Using Multipliers Multiplier values include direct effects Do not aggregate sector multipliers to derive an aggregate multiplier Be cautious of large multipliers Be cautious in using a multiplier from another study area So... Agricultures currently... $ Direct Indirect Induced Total Employment Direct Indirect Induced Total Labor Income Direct Indirect Induced Total $58,123,548 $30,400,837 $15,234,454 $103,758,842 3086.5 1083.2 692.4 4862.0 $468,702,907 $ 96,884,103 $ 50,744,833 $616,371,840

Procedures Used For This Analysis IMPLAN (IMPact analysis for PLANning) * * Geographical database Software and data for model construction and impact analysis

IMPLAN USE FOR COUNTY ECONOMIC ANALYSIS Develop county-wide input-output model Use IMPLAN to derive county-wide output, employment, income and sales tax impacts from each local sector Database of IMPLAN 528 Industrial Businesses Sectors Stutsman County has only 139 Sectors Most 3 or 4 digit SIC All standard counties in the U.S. Available at zip code level (I would not recommend using)


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