You are on page 1of 4

Introduction:

The nexus between global trade and its embodied environmental burden has garnered
significant attention amongst the global community in the recent years. The conflict in
acknowledging and sharing the impacts and the responsibilities of production and
consumption between the developing and the developed countries will lead to various
uncertainties regarding international relations ,especially on the global climate change.
The conflict and uncertainties could be addressed with a comprehensive knowledge
system on international trade flows, the so called Multi-regional Input Output (MRIO)
tables, which had been considered by Leontief as the information system for the world
economy in early seventies.
IO tables:
Since it development , Input Output tables proves to be a key tool for analyzing the trade
flows at various regional and international level. It enables us to understand the structure
of global economies , the trade flows and its relevant monetary transactions. When
combined with social and environmental indicators, It provides numerous opportunities to
develop policies envisioning sustainable growth.
Issues with existing MRIO tables and the development of Eora MRIO tables:
However, the existing MRIO tables have limitations to overcome. The data coverage is
limited in comprehensiveness when comes to disaggregation into sectors and regions. The
data constraints in transformation between different valuations is another area of concern.
Also the infrequency , time gap and time lag associated with generating a time series
data have raised questions on the usage of data for analysis pertained to current day
scenarios. Further, transparency issues have clouded the reliability of the IO data(Lenzen
et al, 2013).
Balancing Approaches:
Updating time series of Multi-regional input tables involves handling constraints and
conflicting informations. Two widely used approaches in constructing Input-Ouput tables
are RAS-biproportional Matrix balancing techniques and constrained optimisation or linear
programming based approaches(Lenzen, Gallego et al. 2009).
RAS approach is a matrix balancing method in which the rows and columns are adjusted
biproportionally in an iterative fashion until a convergence is reached in order to project a
new matrix of technical coefficients(At) for a projected year(t) from a known matrix (Ao) of
coefficients from the base year 0(Stone 1961; Bacharach 1970; Miernyk 2004). The new
matrix for the projected year is then
At= rA0s
12
r is the diagonal matrix of elements modifying row (r=ui/u0)
s is the diagonal matrix element modifying column (s=vi/v0)
A0 is the base year matrix.
EORA MRIO - A SUMMARY MAGHIMAI MARCUS ARULRAJ
1
At is meant to be consistent with two vectors ui(total intermediate output) and vi(total intermediate input)
of each sector in the target year t.
2
(Atxi)i = Ti= uii! & (Atxi)= i!T= vi!. xi is the vector of gross output in the target year , Ti is the projected
transactions matrix for the target year and i is the unit summation vector
In RAS approach non-negative signs are preserved and zero is carried .However, this will
induce conflicts and non-convergence while updating the MRIO tables in which the
subsidies are usually reflected in negative sign while the change in inventory ranges from
negative to positive besides the other elements of contingency table remain positive . Also
the perpetuance of zero might lead to a sparse MRIO table which would result in non-
convergence(Lenzen, Kanemoto et al. 2012)
In generating a MRIO table the raw data dealt have various constraints. They may be
incomplete, unreliable, uncertain and conflicting.While adopting a RAS based approach ,
it has been mandated that the following requirements are met(Lenzen, Gallego et al.
2009).
1) incorporation of constraints on arbitrarily sized and shaped subsets of matrix
elements( i.e. allowing aggregated, disaggregated and partial data coefficients )
2) consideration of reliability of the initial estimate and external constraints(consideration of
standard deviation for the data and its magnitude(confidence interval))
3) handling of negative values and the preservation of it.
4) handling the conflicting external data ( i.,e ability to choose a prospective solution if two
different values exist for a single matrix entry).
In the following sections , the two techniques that were used in generating EoraMRIO by
satisfying the above conditions are summarised.
1) KRAS approach &
2) Van der Plogg least square method.
KRAS Approach:
Many variants of RAS method have been developed such as MRAS, TRAS and GRAS in
the past 4 decades to deal with the conflicting raw data in national IO tables. However,
many national statisticians resolve conflicts manually in updating IO tables while using
RAS methodology. The key problem lies in the inability of handling the conflicting external
data by existing RAS based approaches(Lenzen, Gallego et al. 2009). While constrained
optimization methods could handle these constraints, the simplicity of the RAS
methodology is the factor behind the national statistics departments adopting RAS based
approaches in updating IO tables.
The (Konfliktfreies RAS) KRAS is based on the derivation of the GRAS method of Junius
and Oosterhaven(Junius and Oosterhaven 2003) which has been proposed by Lenzen et
al(2009) to resolve the constraints and the reconciliation of contingency tables. In the first
step, the GRAS method is extended to allow constraints on arbitrarily sized and shaped
subsets of matrix elements by subjecting it to constraints equation Ga=c
3
. Then it is
generalized to handle any real number (non-unity coefficients) by subjecting it to
Lagrangian for first-order minima and solved iteratively using Bregmans balancing
method. Finally, the GRAS method is modified so that reliability is included and the
external data is handled
4
.
Vander Ploegs least square method(Van der Ploeg 1988):
EORA MRIO - A SUMMARY MAGHIMAI MARCUS ARULRAJ
3
G is the vectorized coefeicnts of constraints, a is vectorized elements of matrix and c is the raw
data.Constraints violation is applied here in which the target data is allowed to deviate from the original data
to a smaller extent and convergence is stipulated for ||Ga-c||<!||c||.
4
by subjecting it to standard deviation constraints
It involves bayesian or least square method to optimize constraints in developing MRIO
tables. It is an alternative to the RAS variants. According to the linear programming
principles, the problem of solving the MRIO table can be formulated as ,
mina (t,t0): !i Tij = xj & !j Tij = xi. subject to Gt=c.
Byron (Byron 1978) introduces a variance " and solved it for first order Lagrange equation
for Lagrange muliplier #
5
. Van der Ploeg introduces a slack variable $ where $ = Gt-c
6
..
The distance between the base table and the desired table (gt-c) is collated with the
elements of the existing contingency table through variable p. The relation is explained as
with mean po and variance " . The objective is to minimise the slack variable $ to be a
best fit. p=[t| e]. After the slack variable is collated , the constraints in H is nullified by
extending to G , where g=h-I and I is the identity matrix.Then the problem
becomes,Minimize (p,p0, ") subject to GP=c
7
. In order to preserve signs, the elements
of t are set between boundary conditions , l%t%u
8
. .
General structure of Eora MRIO table :
The Eora MRIO table developed with the above optimization methods is the most
comprehensive MRIO developed so far. It has been considered as a detailed time-series
of data known for its transparency, reliability and timeliness. Having the base year as
2000, the table is constructed for a time series of 1990-2009 with a simultaneous
forecasting and backcasting approach. The initial estimates for year 2000 is scaled using
interyear ratios in an eight dimensional hierarchy for five different valuations and solved
using a software called AISHA
9
. The comprehensiveness of EORA can be explained by
the availability of the transactions table for 187 countries , 15909 sectors , and 35
environmental indicators with a time lag of 1-2 years from the current year
10
.
EORA MRIO - A SUMMARY MAGHIMAI MARCUS ARULRAJ
5
The objective function is = (t-t0) "-1(t-t0) + #(Gt-c) ,solving for 1st order Lagrange ,#=(G
"G)-1(Gt0-c) & t=t0-"G #
6
The above approach is called constraint violation and it allows the targeted solutions to deviate from its
prescribed values. It has been observed that the introduction of variance and disturbance allows the handling
of conflicting and unreliable information
7
The objective function is (p,p0)=(p-p0)! "-1(p-p0). When solved for the first order langrangean , the solutions are #=(G
"G!)-1(Gp0-c) & p=p0-"G #
8
l is the lower bound and u is the upper bound and the ranges are given in bracket as follows:subsidies[-$,0],
change in inventories[-$, + $], other MRIO elements[0,+ $]
9
8 dimensional hierarchy which includes time, valuation, region, entity and sector classification for both origin
and destination. Five different valuations included are basic price, producers price(transport margin), purchasers
price(trade margin), tax and subsidies.
10
Most comprehensive when compared to other IO tables such IDE-Jetro, GTAP, Exiopol and WIOD
Applications:
Eora MRIO tables have multivariate applications that spread across different domains
such as economy, environment and energy, etc. It has the potential to be a key policy
driver by providing substantial information for analysis on international trade, climate
change ,endangered species, and specifically on sustainable development goals.. When
comes to environmental analysis, the extended environmental database can be used to
calculate the carbon, water and energy footprint embedded in global trade and also for
hybrid life cycle assessments. Individual supply chain and networks can be tracked using
Structural Path Analysis(SPA) whereas the changes in technology and economy can be
analysed using Structural Decomposition Analysis(SDA)
Application to Industrial ecology and future prospects.
The Eora MRIO table have opened new frontiers in environmental input-output analysis.
Currently its purpose is tended for footprint and hotspot analysis. By solving the major
drawback of conflicting data constraints, it provides a framework in which several
applications for industrial ecology could be developed. Such model can be replicated for
developing international waste IO tables which would map the flow of secondary
materials across boundaries. By extending the MRIO to material flow analysis and
combining with markov chain models, the hidden trend in material consumption can be
figured out.
Conclusion:
Sustainable development needs robust policies . Robust policies can takes its stand only
when substantial information is available. Eora MRIO is one such initiative developed with
sustainability as its core agenda. When combined with analytical tools , it provides key
insights into past trends and paves way for forecasting future trends. By providing detailed,
transparent and reliable data, it overcomes data gaps and alleviates concerns on
numbers behind policy making. It has potential to evolve as a key driver in sustainable
policy making in the global arena.
Bibliography
Bacharach, M. (1970). Biproportional Matrices and Input-Output Change, Cambridge
University Press.
Byron, R. P. (1978). "The Estimation of Large Social Account Matrices." Journal of the
Royal Statistical Society Series A 141: 359-357.
Junius, T. and J. Oosterhaven (2003). "The Solution for Updating or Regionalizing a Matrix
with Both Positive and negative Entries." Economic Systems Research 15: 87-96.
Lenzen, M., B. Gallego, et al. (2009). "Matrix balancing under conflicting information."
Economics Systems Research 21(1): 23-44.
Lenzen, M., K. Kanemoto , et al. (2012). "Mapping the structure of the World Economy."
Environmental Science & Technology 46: 8374-8381.
Miernyk, W., H. (2004). Leontief and dynamic regional models. Wassily Leontief and Input-
Output Economics. E. Dietzenbacher and M. L. Lahr. United Kingdom, Cambridge
University Press: 90-101.
Stone, R. (1961). Input-Output and National Accounts. Paris, Organization for European
Economic Cooperation.
Van der Ploeg, F. (1988). "Balancing Large Systems of National Accounts." Computer
Science in Economics and Management 1: 31-39.
EORA MRIO - A SUMMARY MAGHIMAI MARCUS ARULRAJ

You might also like