A global inter-country economic model based on linked input-output models

Abstract

We present a new, flexible and extensible alternative to multi-regional input-output (MRIO) for modelling the global economy. The limited coefficient set of MRIO (technical coefficients only) is extended to include two new sets of coefficients, import ratios and import propensities. These new coefficient sets assist in the interaction of the new model with other social science models such as those of trade, migration, international security and development aid. The model uses input-output models as descriptions of the internal workings of countries’ economies, and couples these more loosely than in MRIO using trade data for commodities and services from the UN. The model is constructed using a minimal number of assumptions, seeks to be as parsimonious as possible in terms of the number of coefficients, and is based to a great extent on empirical observation. Two new metrics are introduced, measuring sectors’ economic significance and economic self-reliance per country. The Chinese vehicles sector is shown to be the world’s most significant, and self-reliance is shown to be strongly correlated with population. The new model is shown to be equivalent to an MRIO under an additional assumption, allowing existing analysis techniques to be applied