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Input-output economics

Sustainable Production and Consumption can only be addressed by giving due consideration to economic, social and environmental variables. Policies and measures oriented to support growth and employment must be compatible with long-term sustainability and environmental measures as well as strengthen growth and competitiveness of European industry.

The analysis of the relationships between economic sectors, micro and macroeconomic variables, and socio-environmental factors is of primary importance to estimate the benefits and costs generated European policies. Within this context, the input-output economics is a powerful tool to investigate the possible macro impacts generated at different scale and spatial levels. Characterised by a high sectoral and spatial resolution it allows to investigate the trade relationships between countries and sectors, the changes in production technologies, as well as variation in consumption patterns that such policies may include.

Within JRC, input-output economics is specifically used to assess the relationships of European Policies with:

  • Macro-economic variables, as for example the competitiveness of the EU manufacturing and service sectors, taxation, internal market or trade;
  • Environmental variables, as for example air emissions and pollution, resource use and efficiency or land consumption;
  • Social variables, as for example employment 

In order to expand the JRC capacity to provide policy support and to analyse the impacts of European policies, three main areas of activities are presently developed in relation to the input-output economics, namely: (i) Database construction; (ii) Input-output analysis; and (iii) Modelling (FIDELIO).

Database construction

The JRC is involved in several projects oriented to develop and improve databases for input-output analysis. The core of an input-output database is a multi-country set of supply and use tables (SUTs) and symmetric input-output tables (IOTs) complemented with environmental extensions and a final consumption module. They provide essential information to support policies in the context of Sustainable Production and Consumption at the European level.

TIMESUT, TIMESUT 2: The Eurostat Directorate of National and European Accounts and the JRC agreed to collaborate in the construction of a complete set of Supply, Use and Input-Output Tables (SUIOT). The main objective is to provide the following databases:

TIMESUT: (2007/2011)

  • Square SUIOT available for the 27-EU countries and for the time period 1995-2007
  • Square SUIOT available for European Union-27 and for the Euro Area-17 for the years 2000 and 2007
  • Satellite accounts oriented to link the SUIOT to an Integrated System of Environment and Economics Accounts made by Eurostat E.7.
  • All the tables are provided at current basic prices and are based in the NACE Rev1.1-2digit/CPA Rev.1-2digits for 59 sectors and 59 products

TIMESUT2: (2012/2014)

  • Square SUIOT will be available for 27-EU countries and for the time period 1995-2009, plus projections up to 2011
  • Square SUIOT will be available for European Union-27 and for the Euro Area-17 for the years 2000 and 2009
  • Satellite accounts oriented to link the SUIOT to an Integrated System of Environment and Economics Accounts made by Eurostat E.7.
  • All the tables will be provided at current basic prices and will be based in the NACE Rev2/CPA Rev.2 for 64 sectors and 64 products

TIMESUT projects are also oriented to provide support to Eurostat in the analysis of the best practices for compilation of missing tables and for compilation of tables in previous year prices.

More information: EURSTAT

CREEA: The JRC is one of the partners of the consortium created for developing the CREEA project (Compiling and Refining Environmental and Economic Accounts) financed under the 7th Framework Programme for Research (FP7) of the EU. CREEA project is taking place between 2011 and 2014 is mainly oriented to:

  • Refine and elaborate economic and environmental accounts
  • Troubleshoot and refine approaches
  • Show value added of having such harmonised data available via case studies

CREEA project will deliver a database composed by a set of multiregional Supply, Use and Input-Output Tables (MR SUIOT) for the 27-EU countries, 16 main trade partners and the Rest of the World as an aggregated region. The time period will be the year 2007 both at current and at constant prices. A review of the year 2000 of EXIOPOL database will be also provided. The satellite accounts include:

  • Final consumption and post-consumer activities: full life-cycle impact
  • Some stocks and resource endowments
  • Environmental accounts for emissions, resources use, ecological footprint, midpoint indicators (LCA) and external cost valuations

More information: CREAA

WIOD: The JRC was one of the partners of the consortium created for developing the WIOD project (World Input-Output Database: Construction and Applications) financed under the 7th Framework Programme for Research (FP7) of the EU. WIOD project, that took place between 2009 and 2012, was mainly oriented to develop new databases, accounting frameworks and models to support policy makers and societies at large in the analysis of the increasingly pressing trade-offs between socio-economic and environmental objectives. 

The World Input-Output database is composed by:

  • Multi-Regional Supply and Use Tables disaggregated between 35 sectors and 59 products
  • Multi-Regional Input-Output Tables for 35 sectors
  • Socio-economic satellite accounts
  • Energy, emissions and resources satellite accounts

The WIOD is available for the 27-EU countries, the 12 main trade partners and the Rest of the World as an aggregated region. The time period is between 1995 and 2009 and tables are available both at current and at constant basic prices

For more information: http://www.wiod.org/index.htm

EXIOPOL: The JRC was one of the partners of the research consortium created for developing the EXIOPOL project (A New Environmental Accounting Framework Using Externality Data and Input-Output Tools for Policy Analysis) financed under the 6th Framework Programme for Research (FP6) of the EU. EXIOPOL project, that took place between 2007 and 2011, was mainly oriented to: 

  • To synthesize and develop comprehensive estimates of the external costs for Europe of a broad set of economic activities;
  • To set up a detailed environmentally extended (EE) Input-Output (I-O) framework, with links to other socio-economic models, in which as many of these estimates as possible are included. Such an EE I-O table for the EU 25 does not exist. This will allow for the estimation of environmental impacts and external costs of different economic sector activities, final consumption activities and resource consumption for countries in the EU;
  • To apply the results of the external cost estimates and EE I-O analysis for the analysis of policy questions of importance, as well as to evaluate the impact of past research on external costs on policy-making in the EU.
  • The EXIOPOL database is presently composed by a set of Multiregional Supply, Use and Input-Output Tables (MR SUIOT) for the 27-EU countries, 16 main trade partners and the Rest of the World as an aggregated region. The time period is the year 2000 at current prices and the sector/product resolution is 129 sector/129 products. The satellite accounts include:
  • Final consumption and post-consumer activities: full life-cycle impact
  • Some stocks and resource endowments
  • Environmental accounts for emissions, resources use, ecological footprint, midpoint indicators (LCA) and external cost valuations

More information: FEEM Project


Input-output analysis

The JRC is using the databases presented above to perform Input-Output analysis oriented to provide policy support in the socio-economic and environmental areas.

Pocketbook: Based on Input-Output analysis derived from the World Input-Output Database (WIOD) the JRC has recently published two pocketbooks presenting a series of indicators describing the evolution of the use of natural resources and the emissions of air pollutants around the world, in relation to production, consumption and trade activities. The publications include information on six environmental dimensions, namely: land, materials, water and emissions of acid substances, greenhouse gases and ozone precursors. The time frame covered is the period between 1995 and 2008, and the geographical area includes the EU-27 countries, China, India, Japan, Russia, the United States of America and the Rest of the World as an aggregated region.

The JRC is providing scientific policy support to DG Trade by performing Input-Output analysis oriented to quantify the numbers of jobs generated within EU-27 by the Extra-European Exports.

By using the data provided into the TIMESUT database and the EUKLEMS data on employment, the number of jobs generated by exports activities as been quantified for the time period 2000-2007. Disaggregated data between countriesand between economic sectors are also available.

More information: Extra - EU Exports and Employment

Global Economic Impacts from the 2011 Japanese Disasters: The JRC quantified, for the first time, the global economic impacts generated by the 2011 Japanese Disasters. By using the World Input-Output Database (WIOD) and a Multiregional Input-Output Model, the cascading effects generated on global economies by the disruption in the supply-production chain of automotive sectors have been quantified both in terms of value added and output reductions. A quantification of the most affected economic sectors and countries are provided.

 


Modelling

JRC supported by the Austrian Institute of Economic Research (WIFO) and the Joanneum Research have developed an econometric input-output model for the EU aiming to support European policies that contributes towards the goal of sustainable production and consumption. The model is called Full Interregional Dynamic Econometric Long-term Input-Output (FIDELIO) model.

FIDELIO relies on the following general features that make it different from other existing economic models. These are:

  • FIDELIO reconciles econometrics and general equilibrium by means of a calibration process based on recent and relevant econometric analysis.
  • FIDELIO assumes rational agents under institutional constraints: liquidity, durability and lumpy character of investment and union wage bargaining.
  • FIDELIO has special emphasis on energy and environment in consumption and production: physical data linked to monetary data and modelling of technical change.
  • FIDELIO includes detailed commodity and industry based modelling of economic structures and trade.

The model was denominated FIDELIO for the following reasons. It is "full" in the sense that it comprehends a complete macroeconomic model with consumption, production, trade, labour market and environment. It is "interregional" because it provides a detailed modelling of trade flows by: (i) country, (ii) commodity, and (iii) user, using as much as possible the trade information vs. the standard "Armington" elasticities for all commodities. The model is also "dynamic" since it provides an inter-temporal optimisation approach of the consumption and assumes investment derived from optimal capital stock. The model uses the most relevant and recent time series data for EU 27 countries for the "econometric" analysis and captures short-run Keynesian multiplier effects and "long-run" full employment, leaving out the modelling of the business cycle. And, finally, it is an "input-output" model because it is based on detailed Supply-Use tables from the Input-Output framework, which to our knowledge is the first of its kind.

Coverage of FIDELIO

Geographical

 EU-27 countries plus RoW

Base year  

 2005

Sectoral

 59 industries * 59 products

Final Demand

6 categories (CP, NPISH, CG, GFCF, INVENT, x)

Private Consumption

17 commodities * 59 products

Investment

59 industries * 59products

Value Added

5 categories (wages, SocSec, ConsFC, PTNS, Surplus

Employment

3 skill levels, 2 dimensions (hours, persons)

Blocks

5 (consumption, production, labour, trade, environment

Environmental Extensions

5 (energy, air emissions, land, water materials)

Econometric Estimations

Based on the period 1995-2009

 

The present version of FIDELIO can be used to investigate both demand-side and supply-side shocks, but, in general, it is more suitable for impact assessment analyses of the demand-driven shocks To name a few applications, FIDELIO is suitable for economic and environmental assessment of introduction of different market based instruments such as taxes and subsidies, the effects of external/natural shocks on output supply, and the effects of changes in tariffs and transit costs (e.g., due to a country joining a free trade agreement).

The first application of FIDELIO focuses on the impact assessment of one part of the Thematic Strategy on Air Pollution (TSAP) , namely, the analysis of the strategy of reducing air emissions to due installation of more environmentally friendly households' appliances (fireplaces, boilers, and stoves).

Future extensions of FIDELIO will include:

  • Extension of its geographical coverage by including US, Brazil, Russia, India, China, Japan and Turkey
  • Endogenising the environmental block by linking energy consumption, air emissions and land use, on the one hand, and linking economic and environmental variables on the other.
  • Splitting households' consumption demands into different income levels
  • Sensitivity analysis (e.g., robustness vs. uncertainty in the parameters)