APPENDIX 2: THE INPUT³OUTPUT FRAMEWORK
The Input-Output framework forms the core basis of the CBI Economics in-house models for the UK and regional economies. Drawing on the Input-Output Analytical Tables, derived from the UK and Scottish National Accounts, it: • Traces out the transaction flows between different industries, as well as between industries and other sectors of the economy which capture all the potential sources of demand for an industry’s economic output (such as households, government, export demand, capital investment). This shows both the inter-dependencies between industries, or supply chain relationships, which enable us to estimate supply chain contributions, and the relationship between consumers and producers within the economy. • Outlines the sets of inputs required in the production of one unit of output in addition to inputs purchased from other industries. These are the primary inputs, which include GVA (made up of compensation of employees, gross operating surplus, and taxes, less subsidies, on production), imports, and taxes on products. • Estimates the total economic contribution of a sector by quantifying the interactions between the sector on its supply chain and household income. Following from the Input-Output Tables, Type I and Type II multipliers are calculated for variables such as output, GVA and employment. Type I includes the direct (first tier of supply chain) and indirect (rest of the supply chain) effects, and Type II includes direct, indirect, and induced effects (the effects attributable to further spending generated with industries by the wages and salaries of the jobs supported). These multipliers essentially add up the effects across all industries, therefore capturing the extent of the economic contribution throughout the wider economy. For this modelling, the Type II multiplier will be applied.
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