Regional Input Output Models and the FLQ Formula: A Case Study of Finland

Abstract

This paper examines the use of location quotients (LQs) in constructing regional input-output models. Its focus is on the augmented FLQ formula (AFLQ) proposed by Flegg and Webber, 2000, which takes regional specialization explicitly into account. In our case study, we examine data for 20 Finnish regions, ranging in size from very small to very large, in order to assess the relative performance of the AFLQ formula in estimating regional imports, total intermediate inputs and output multipliers, and to determine an appropriate value for the parameter ? used in this formula. In this assessment, we use the Finnish survey-based national and regional input-output tables for 1995, which identify 37 separate sectors, as a benchmark. The results show that, in contrast with the other LQ-based formulae examined, the AFLQ is able to produce adequate estimates of output multipliers in all regions. However, some variation is required in the value of ? across regions in order to obtain satisfactory estimates. The case study also reveals that the AFLQ and its predecessor, the FLQ, yield very similar results. This finding indicates that the inclusion of a measure of regional specialization in the AFLQ formula is not helpful in terms of generating superior results.Regional input-output models Finland FLQ formula Location quotients