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1 <br />1 <br />1 <br /> <br />1 <br />1 <br />1 <br />it <br />1 <br /> <br /> <br />In Figure 3-A-1, there are two sectors (1 and 2) in the economy. The four shaded elements in the <br />upper left corner of the table represent the inter-industry flows (the linkages) between the sectors. <br />Sectors I and 2 are linked both forward and backward. That is, sector 1 provides inputs to sector <br />2 and vice versa. Thus, a direct impact to sector 2 finds its way to sector 1 via two channels. <br />There is a flow of 200 dollars from sector 2 to sector 1 and 100 dollars to sector 2. The table also <br />reports other factors concerning the activity of the economy. For example, sector 2 generates a <br />gross output of 1900 dollars. Households consume 300 dollars of sector 2's output and the <br />remaining final demand categories (investment, government, and net exports) take up 1300 <br />dollars. Total payments equal gross output for each sector. Thus, the economy is in balance. <br />Labor earns 300 dollars in sector 1 and 500 dollars in sector 2. <br />Thus, a key property of I-O models is that they capture the linkages that exist in an economy. An <br />external shock to a particular sector, due to actions taken on behalf of the endangered fishes. will <br />be reflected throughout the economy. The I-O model allows identification of consequences for <br />each sector of the economy as well as the entire regional economy. These consequences are <br />measured as changes in output and employment. For example, if the gross output of sector 2 <br />increases due to an exogenous action, this leads to an increase in the output of sector 1 and <br />increases in the payments to labor.' <br />The input-output method enjoys considerable support for its continued use in regional economic <br />' analysis. As Dervis, De Melo, and Robinson [1982] have noted, <br />"The core around which all such applied models are built is the input-output <br />' model pioneered by Leontief. The essence of input-output analysis is that it <br />captures the crucial element of the interrelatedness of production arising through <br />the flow of intermediate goods among sectors.... the simple input-output model ... <br />' represents a powerful tool for applied general equilibrium analysis." [p.6] <br /> <br />' ' An exogenous action is an action that occurs outside of the economy, but which may have effects on elements <br />within the economy, such as a regulation imposed by a federal or state agency. An endogenous action is an action that <br />is initiated within the system. <br />' 17 <br />