An Input-Output model represents the flow of money in an economy, primarily through the connection between industries; it shows the extent to which different industries are buying from and selling to one another in a particular geographic region. An I-O model also accounts for things like government spending, household spending, investments, imports, and exports, all of which help us gain a full picture of what is happening in an economy.
I-O models have three important uses:
Change – An I-O model can be used to demonstrate the effect job loss or job creation will have on a regional economy–to what extent it will affect other jobs in the area, additional earnings and sales. See how to do this HERE.
Supply Chain – An I-O model has the potential to expose the supply chain of goods via industries in a region. In particular, to what extent each industry is able to satisfy its purchasing needs in-region or out-region. This can be very helpful to economic development organizations who are looking to strengthen a local supply chain and increase in-region purchasing. See how to view an industry’s supply chain HERE.
Industry Importance – An I-O model can be used to identify important industries in your region–not just those with a lot of jobs (like retail or healthcare) but also those which have an unusually large and positive economic impact, like advanced manufacturing, technology, etc.