Notes On Some Common Misconceptions In Input-Output Impact Methodology

The methodology in many studies involving input-output analysis appears to be often misunderstood, particularly in the way multipliers are used. The preoccupation with multipliers has led in many cases to incorrect analytical procedures; for example, there is a temptation to first derive a multiplier and then use this multiplier to calculate the total impact on the economy. This paper demonstrates that this approach is often erroneous and can result in significant errors. In addition, the importance of determining how imports are treated when using input-output in empirical situations is discussed. This is particularly relevant when using input-output tables in developing countries. Other issues which are clarified include the use of output multipliers, state versus regional multipliers and impacts, expenditure switching and table balancing.