Estimation of Capital Matrices for Multisectoral Models: An Application to Italy and Tuscany

Abstract

This paper refers to the Tuscany case study which constitutes a systems analysis of integrated regional development in the Tuscany region. A core of this study is the development of applied models and methods undertaken by the Regional Development Group at IIASA, in collaboration with the Regional Institute for Economic Planning of Tuscany (IRPET). A bi-regional input-output model has a central part in the system of model development. In order to capture the dynamic process of capacity creation and removal, the capital formation has to be included into the input-output framework in a systematic way. This presupposes an estimation of capacity change and of capital coefficient matrices. This paper presents a systematic approach to obtain these estimates, also in the case where only a limited set of data is available. In summary, the method combines a vintage type production theory and an estimation technique based on information theory