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Exercise 1: Composition of a SAM Exercise 2: Analysis of a SAM Exercise 3: Input-output linkages and multiplier effects Exercise 4: Unconstrained SAM multiplier analysis Exercise 5: Constrained SAM multiplier analysis
Exercise 1
Composition of a SAM
Factor markets
Indirect taxes
Direct taxes
Fiscal surplus
Productive activities
Households
Intermediate demand Social transfers
Government
Investment
Sales income
Commodity markets
Exports (E)
Imports (M)
Rest of world
Remittances Foreign grants and loans Capital inflows
Income rows
Exercise 2
Analysis of a SAM
24,996
12,029
12,142
1,805
4,680
5,151
35,807
Factors
9,717
9,717
3,250
3,250
9,717
3,250
1,387
2,001
16,354
940
739
4,052
3,272
860
548
4,680
8,439
35,807
9,717
3,250
16,354
4,052
4,680
8,439
Exercise 3
Forward linkages
Consumption linkages
1. Prices are fixed and any changes in demand lead to changes in physical output rather than prices.
2. Factor resources are unlimited or unconstrained, so that any increase in demand is matched by increased supply. 3. Input coefficients of producers and consumption patterns of households are unaffected by exogenous changes in demand (i.e., linkage effects are linear and there is no behavioral change).
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
A1 A2 C1 C2 F H E Total
Z11 Z21 V1 X1
Z12 Z22 V2 V1 + V2 X2 L1 Z1 L2 Z2 V
C1 C2 S Y
E1 E2
X Z V Y E
= gross output of each activity (i.e., X1 and X2) = total demand for each commodity (i.e., Z1 and Z2) = total factor income (equal to household income) = total household income (equal to total factor income) = exogenous components of demand (i.e., government, investment and exports)
A1 A2 C1 C2 F H E Total
E1 E2
a b v l c s
= technical coefficients (i.e., input or intermediate shares in production) = share of domestic output in total demand = the share of value-added or factor income in gross output = share of the value of total demand from imports or commodity taxes = household consumption expenditure shares = household savings rate (i.e., savings as a share of total household income)
X1 =b1 Z1
X 2 =b 2 Z 2
We also know household income depends on the factors earnings shares in each sector
Y=v1X1 + v 2 X 2 = v1b1Z1+ v 2 b 2 Z2
We can now replace X and Y in the demand equations
Z1 =a11b1 Z1+a12b2 Z2 +c1 ( v1b1Z1+ v2b2 Z2 ) +E1 Z2 =a21b1 Z1 +a 22 b2 Z2 +c2 ( v1b1Z1+ v2b2 Z2 ) +E2
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Z1 =a11b1 Z1+a12b2 Z2 +c1 ( v1b1Z1+ v2b2 Z2 ) +E1 Z2 =a21b1 Z1 +a 22 b2 Z2 +c2 ( v1b1Z1+ v2b2 Z2 ) +E2
Move all terms, except for exogenous demand E, onto the left-hand side
(1-a11b1 -c1 v1b1) Z1 + ( -a12b2 -c1v2b2 ) Z2 =E1 ( -a21b1 -c2 v 1b1) Z1 + (1-a 22b2 -c2 v2b2 ) Z2 = E2
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
(1-a11b1 -c1 v1b1) Z1 + ( -a12b2 -c1v2b2 ) Z2 =E1 ( -a21b1 -c2 v 1b1) Z1 + (1-a 22b2 -c2 v2b2 ) Z2 = E2
We can now use matrix algebra to convert the equations into matrix format
The first term is the identity matrix (I) minus the coefficient matrix (M). We can also rename the other two vectors Z and E
( I-M ) Z = E
Finally, by rearranging terms, we arrive at the unconstrained multiplier formula.
-1 Z = ( I-M) E
Exercise 5
(1-a11b1 -c1 v1b1) Z1 + ( -a12b2 -c1v2b2 ) Z2 =E1 ( -a21b1 -c2 v 1b1) Z1 + (1-a 22b2 -c2 v2b2 ) Z2 = E2
We now distinguish between sectors that can change their production level (Z1), and those sectors with supply constraints (Z2).
Previously exogenous components of demand are now treated as exogenous (E2) (i.e., net exports will now be able to change if domestic production cannot).
As with the unconstrained multiplier formula, we group exogenous components onto the right-hand side
(1-a11b1 -c1 v1b1) Z1 =E1 + ( a12b2 + c1v2b2 ) Z2 ( -a21b1 -c2 v 1b1) Z1 - E2 = - (1-a 22b2 -c2 v2b2 ) Z2
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
(1-a11b1 -c1 v1b1) Z1 =E1 + ( a12b2 + c1v2b2 ) Z2 ( -a21b1 -c2 v 1b1) Z1 - E2 = - (1-a 22b2 -c2 v2b2 ) Z2
This equation can be expressed in matrix format
The first term on the left-hand side is the identity matrix (I) minus an adjusted coefficient matrix (M*). We will call the first term on the right-hand side the B-matrix.
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