Preferences, technology, trade and real income changes in the European Union - An intercountry decomposition analysis for 1975-1985

This paper refines, develops and applies input-output decomposition analysis. First, by putting it in an unique intercountry perspective, second, by concentrating on explaining income growth, and, third, by systematically separating the effects of trade pattern changes from the effects of technology and preference changes. The resulting matrix decomposition formula distinguishes six components, and is applied to a set of EU-intercountry input-output tables in constant prices, with 25 sectors and 6 EU-countries, for 1975 and 1985. Macro economic demand growth is found to be most important component at the aggregate country level. The other five components relate to the impacts of coefficient changes. Their sizes are smaller, but at the sector level they are quite large and different between individual sectors and countries. It is concluded that the analysis uncovers a much broader potential impact for national and EU industrial policy measures than the usual less refined decomposition analyses

Double deflation and aggregation

Published input-output tables in constant prices are relatively scarce. Therefore, input-output tables often have to be deflated by the practitioners themselves. The method of double deflation is used predominantly for this purpose. The present paper shows that the double-deflation method is subject to aggregation problems. Necessary and sufficient conditions for the double-deflation method to provide the correct answers are derived. The conditions are found to be stringent and unlikely to be met in empirical cases. The results for aggregation in the case of double deflation are shown to be dual to the traditional results for aggregation in the case of a quantity model, which have been extensively discussed in the literature

Deflation of input-output tables from the user's point of view:a heuristic approach

This paper considers the problem of deflating an input-output table from the viewpoint of the user. In many practical cases certain margins of this table are readily available in constant prices, whereas the entire table is not. This reduces the problem to estimating the matrix of sectoral intermediate deliveries in constant prices. The traditional approach for this purpose is based on the double deflation method. Since double deflation is sensitive to aggregation, however, it typically does not provide correct answers. Therefore, a heuristic approach is proposed as an alternative. It is based on the biproportional projection method. An empirical evaluation indicates that the heuristic approach clearly performs better