THE ROLE OF INTERINDUSTRY STUDIES IN ECONOMIC INTELLIGENCE

Created: 9/1/1957

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TITLE: The Role Of Interindustry Studies in Economic Intelligence

AUTHOR: Robert Loring Allen

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STUDIES

INTELLIGENCE

A collccllon of articles on tho historical, operational, doctrinal, and theOfOtlcal aspects of Intelligence

All statcmcnu of fact, opinion or analysis expressed in Studies in Intelligence are those of

the authors 'Ihey do not necessarily reflect official positions or views of the Central Intelligence Agency or any other US Government entity, past ot present Nothing in the contents should be construed as asserting or implying US Government endorsement of an article's (actual slatemenis and interpretations.

THE BOLE OF INTERINDUSTRY STUDIES IN ECONOMIC INTELLIGENCE

Robert Loring Allen

Interindustry economics, or, as It has sometimes been called. Input-output analysis, is an organizational framework and tool of analysis for studying an economic system quantitatively, rigorously, and systematically. The techniques permitof an economyhole and of individual products and industries simultaneously. Interindustry research mustbe regarded as long-run cumulative research, Thefor data are large. In many cases intelligence sources cannot provide much of the information needed.low and painstaking process of continuous research can All the gaps. In the short run, interindustry studies contributeystem or framework in which many types ofeconomic information can be related to one another. In the long run, as the data Improve and accumulate. It will be possible to undertake the solution of complicated problems, as. for example, to estimate the economic consequences of given sets of wartime demands on an economy.

The beginning of analysis with Interindustry techniquesetailed description of the economic system for an annual period. The goods and services produced in the economy are aggregated into sectors. The description indicates the(purchases and sales) among these sectors. Any given sector is described both In terms of Its purchases from each of the other sectorsthe Input, or cost, structureand Its sales to each of the other sectorsthe use, or consumption, pattern. For the whole economy, all the transactions which took place in the given year are shownouble-entry accountingllation organized so that along the rows the use patterns of the sectors are arrayed and in the columns the inputof tbe sectors are listed. Tbe interindustry tabulation la the basic Information with which analysis Is performed.

consumed by other sectors or by distinguishing between two types of sectors in order to determine the impact of changes in

mto^ output The open Interindustry system has been the most useful both

because the assumptions it is necessary to make more nearly approach the facts than is the case with the closed system and because open interindustry system analysis offers theofide range of problems concerning changes in demand and technical structure. .Interindustry system distinguishes betweensectors and final demand sectors. The Interindustry

agWl prlmflriJy to buy-nf.other sectors and selling to other sectors. The fcod-processing. chemicals,ortaUon sectors are examples. These sectors buy raw

Zy^rHf' ZMC.nd^ts and in turnV other -ndustries and to households, ihe anal demand sectors consume the output of other sectors

X?LS? Pn?u? 8output which is sold to to be final demand

SSlf lM!Jfh0Jloreign trade, government (mcludlng military) expenditures, and capital formation.

The amount of research effort, the quality and quantity of

Str. 'reSearChltechnoSglcalLd declsion-rnaklng processes of the sectors condition the decision toector in final demand. For the interindustry sec-

aSSUmeS toederrelatlon-ships between Inputs and outputs. The fact that suchare not made for final demand sectors, in whichof technical toterreiatlonships is seldom characteristic

The breakdown of transactions within the economy and the} nature of the Inton-elatlonships may be of varying demesof complexity. The three major transactionsurrentapital account,atenesncnal transactions. Technical Interrelationshipseruly^ -

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sumed to be constant If data are available, however, linear, i m<f

discontinuous, or curvilinear functions can be used.

An; given transaction between one sector and another may be divided Into Its components and tabulated along with theurchase designed to meet the current operating needs of the buyer is usually the Largest proportion of the total purchaseector. In much of Interindustry analysis this transaction Is the only one taken into accountart ol the interindustry system. Another segmenturchaseector is that which is on capital accountpurchasesto add to capacity or to increase inventory. When analysis is performed using the relatively simple currentInterindustry system, capital transactions for all sectors are aggregated Into separate capital formation and inventory sectors, which are usually placed in final demand. Whentransactions are Identified for each purchaser from each seller,ouble Interindustry system results. The double system is called the dynamic Interindustry system

Another breakdown of transactions Is to specify the region originating and the region receiving for every purchase and sale. Such an interregional Interindustry system amounts to splitting the national interindustry tabulations Into regional components and Indicating not only the interindustrybut also the interspatlal transactions.

The more complicated the Interindustry systems become,rigorous become the assumptions which It ismake to perform analysis In the simple currentsystem It is usually assumed only that theinputs and outputs for aO Interindustry sectorstechnical functions.ynamic system Itin addition, that the relationships betweenand outputs at capacity are known technicalInterregional system Involves the assumption that thenknown technical relationship between Inputs and outputs.by :'.

The technical Interrelationships are usually assumed to be fixed and constant. It is not analytically or computationally necessary that technical coefficients be constant The funo-

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dynamic and Interregional systems and notwithstanding the analytical feasibility of flexible assumptions aboutinterreiatkmshlpi, the work which has been done inanalysis has in fact been largely confined to the more simple current transactions system. In which the final demand sectors correspond roughly to gross national product, which includes household consumption, government expenditures, and capital formation.

The type of analysis which can be performed with an open mtermduatry system is called the analysis of parametric change. Parameterathematical term denoting in thiset of values derivedypothetical situation. It is the purpose of analysis with an open interindustry system to trace through the economy the consequences correspondingiven set of values. The parameters In Interindustry analysisales to final demandamong interindustry sectors embodied in the description of the structure of the economy. Changes in these elements nave economic Impact far beyond the immediate change.

The Interdependence of modern economies, as depicted in interindustry tabulations, is such that any change in the structure or in final demandomplicated round of ^direct effects. Interindustry technique is oriented toward determining quantitatively the magnitude of indirect effects on the output of all sectora.

An Increase ofinal demand for almnmum products, for Instance, results In an increased demand for all Inputs feeding Into that aector. Aside from labor and taxes, which are charges against final demand, these Inputs are bauxite, alumina, electric power, chemicals, metals, andsince demand for aluminum to up, the supply sectors must expand operations and hence demand more In-

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puts from their suppliers, and so on. Theae^reciprocal

Indirect effects are frequently smallf^/f^

the cumulation of the second, third, and fourth rounds, and so on, amountsignificant proportion of the total Indirect effects. From an initial increase In final demand ofillion worth of aluminum products there results an5 million, or indirect effects5 million. The total expansion Is divided as follows:

The Impact ofillion Worth of Aluminum Product Deliveries to Final Demand

In Thousands of Dollars

Steel Works and Rolling MUU

Metals

Rolling and Drawing

Metal Rollins

Copper

Mining

and Coke

Trade

Lead and Zinc

Products and Crude Petroleum

Light and Power

Chemicals

Honferrous Metals

Aluminum

Rolling and Drawing

changes In final demand, changes inound of Indirect effects, resultingifferent level of output for allomparison of sector output under the two situations indicates what effect the structural change has had.

It also Is possible to interpose side conditions and determine the consequences of the economy's operations under theseAssume that the outputs of all sectors have beenunder given conditions. Then It may be postulatediven sector's outputpecific amount. With the new schedule of outputs, the same as before except for the one sec-

ew final demand may be jjetermlned. In addition, different magnitudes and mutes for final demand may beallpecific output for the given sector but with other sector outputs free to change

Within the framework of analysis of parametric change (and sidet Is possible to deal not only with the structure on current account but also on capital account and to take into consideration other more complicated phenomena. To do so multiplies tbe data requirements, requires new assumptions, and introduces time explicitly into the analysis. While more complex in data, analysis, and interpretation, the results are in finer detail and are more precise and reveal aspects not discernible In simpler analysis.

Underlying ell the analysis, Indeed all analysis,ogical system. In Interindustry analysis the logical system can be framed In mathematical terms. The mechanism of analysis follows this mathematical structure closely. The precise form of analytical process is not uniform, and there is no "grand solution" which solves all problems. It Is true that when the assumptions are decided upon, when all the data are In, and when no changes are foreseen, the data can be manipulated mathematically and the solution to the system (or systems) of equations Implied by the interindustry structure can be obtained. Thisarticularly costly procedure, and It freezes the data, classification system, and assumptions, so thatmall changeepetition of the expensive solution. The usual process makes possible more flexibility in data changes (including estimates of temporal and scale changes In structure) and In the application of limiting assumptions, and It allows for detailed examination of specific groups of sectors without much attention to other sectors. The process is called Iteration, but the procedure cannot be spelled out hi detail, since It changes from problem to problem. In general, iteration involvesiven impact through the economy by band rather than mechanically, starting with the Initial changeector's output, determining Its Impact on the sector's suppliers, then the impact on the sectors supplying

these suppliers mid the sectors supplying the _aecond-round suppliers until the mdlrect aflccts are negligible0"

It must be remembered that the technique Is not Inredictive device. The predictive element enters through the parametric changes or side conditions which are Imposed on the economy. The analysis performs the function of taking these predictions and converting them into predictionsifferent type. Itehicle for completing conditionalof the form: "If X.he "X"redictionhange In finaltructural change,ide condition. Then" is the analytical framework by which it is possible to derive conclusionhich Isrediction. "Y"chedule of sector outputs, to be compared withoutputs determined before "X" was specified. Thesimply carries the prediction along and revealsthat are not clearly obvious. Since the analysisinformation about the economy, it influences the derived predictionn any event, however, u* "X" is an Inaccurate forecast, then "Y" will inevitably be wrong.

Grist for the Interindustry analysis nun is Information ashe magnitude of transactions (purchases or sales) among the sectors of the economyhe technical(input coefficients) among the sectors of theTransactions data can be viewed as coming from two sets of books. One set of books records all of the purchases of each sector from each of the other sectors. The other set of books indicates all of the sales of each sector to each other sector. The two sets duplicate eachomplete record of sales Isomplete record of purchases. The technical data, showing lntersector reUUonships. consist of scattered Information derived from engineering analysis. In practice, however, sectors of the economy do not keep books, data are scarce, and the information needed for interindustry analysis Is limited and difficult to obtain.

Generally, there are three sources which form the empirical basts for Interindustrytatisticalngineering and technical data,nformation derived from samples.

. f'jj c-

tlatical record lniormaUon Is the moat Important ^

and many other countries, such data are basedupon records kept by individual firms. The dataand made available through census and survey<Ceiutu ofineralheublications of trade and industrialand directly from the production and accountingof the firm.

Engineering and technical data are available in manyengineering analyses to be found In textbooks, manuals, and specialized periodicals. It Is possible In many cases to undertake research investigations making use of engineering methods to develop information on Industrial

Techniques of sampling make it possible, by interviews and questionnaires, to obtain information about the whole from limited data about lis parts. Samples of recorded Information, where the whole body of data is large, have also proved useful.

The three principal empirical sources provide the underlying data required to pieceomplete quantitativeof the structure of the economy. The sources of data are not independent, and none by Itself Is adequate. Theyto form the description of economic structure on which subsequent analysis is based.

Tbe data required for Interindustry studies are morethe data needed for most economic analysis. Theof data for mterindustry purposes gives rise to afor error. Much economic analysis makes use ofaggregated data, hi which small errors are canceledIn Interindustry analysis every error is fullythe results. In other economic analysis, greatercan be achieved because more attention can be givenpart of aggregated

The data used in interindustry work have not beenV-

accurate. Census information, sampling, and some'J v

Ing coefficients have gone Into the construction of existing Interindustry tabulations. Despite tbe factreat

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rig^Amount of data has been.cumulated and that competent analysts have been working with the dataeriod of years, theretill much to be desired. Weaknesses In data and lack of data have been the major stumbling blocks toanalysis.

One of the most important analytical uses of interindustry studies Istudy of the implications of changes in external demands on the economy. These changes are based ultimately on peace or war strategy and tactics, technological Innovations, weapons systems and defense measures, and decisions ofand consumers. These considerations must be reduced to quantitative economic terms which are consistent with the description of economic and industrial structure. The data Involved in hypothetical changes are no less important than the data on economic structure, although the former areneglected. Estimates and, often, guesses substituteareful derivation of the economic quantities impliedhange In strategy. If the data specifying the change are not accurate, the conclusions will be amiss.

The uses of interindustry analysis have already been Implied in the types of analysis which can be undertaken. The great aingle analytical use is the determination of indirect effectshange in final demand, sector output, or the structure of the economy, or in some combination ofnowledge of these facts is useful not only in Itself but also as an aid tn the analysis of the operation of the economy.

Several broad classes of uses may beationalarket and sales research,conomicIn all of the uses, variations and combinations of types of analysis can be used.

In addition to the analytical uses mentioned above,studiesaluable consistency check andfor estimates derived from national accounts (such as industrial production indexes and gross national product) andtarting point for analysis along other lines or of separate sectors. These auxiliary analytical uses are tn some cases as valuable as the analysis of parametric change. For

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instancy analysis ol the relationship between the construction industry and other Industries in the US has revealed serious errors in data on construction activity.

The organizational system implied In interindustry analysis is one of its most significant contributions. The use of acoded classification system In which each sector isdenned makes It possible to organize the data,and methods of estimation in an orderly manner andeans both for continual accretion to data and for checking their consistencyontinuing basis.

The limitations of any technique of analysis resultailure of assumptions to appioximate actualnadequate or improper formulation of theeakness in and lack ofrrors In Inference,naccurate and inadequate interpretation of the results

Econoraic analysis has advanced to the point where logical flaws in inference are rare. The basic formulation of tbein interindustry analysis is sound. Granting its assumptions, interindustry analysis has been demonstrated to be logically accurate. Even so. however, it can be misused, and care must be exercised to see that the formulation Isand the inferences are carefully drawn.

The other limitations, those arising from assumptions, data, and interpretation.eavy obligation on thosethe analysis. The limitations are such that no precise statement can be made as to tbe magnitude of error introduced by any of them separately or by the three combined.as to direction and magnitude of error cannot be made.atum Is wrong. It Is reflected tn the results. If an assumption is inaccurate, the conclusions will be biased. If an interpretation is not appropriate, toe purpose of the analysis is defeated. Precisely tbe same conditions obtain for any other form of analysis. If thereifference between interindustry and any other kind of analysis In this respect. It results from the facta (I) that the assumptions are more zpe-dfle andhat more detailed datahat Interpretation Is more complex. Each of these may allow error to Intrude.

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tl(rulajjXQnsideraUons axe especially troublesome-One It the frcquenrassumption that the Input per unit output is fixed for all ranges of output. Tbe other is the possibility that theata are so large that they are as large as, or larger than, tbe indirect effects which are the major reason for undertaking the analysis in the first place. Thesecannot be dismissed and must be constantly kept in mind. Extreme care must be maintained to see that the limiting assumptions, especially those involving fixed coefficients, are handled so that conclusions are not impaired. The process of Iteration mitigates In some degree the fixed coefficientsince by means of this process the coefficients may be changed to reflect temporal, scalar, and structural changes. Even so, analysis necessarily proceeds on the basis of assumed technological rigidities which are frequently at odds with actual events, and the limitation must always be considered. Data weaknesses are often so great that one has no confidencearticular indirect effect may be twice as much or only half that resulting from analysis. The errors may be greater than the indirect effects. The hazard Is Increased by the fact that it is not possible to determine where weaknesses In data have vitiated the results. The data are mtermlngled to such an extent that It Is almost Impossible to untangle them and findoor datum has Influenced the results adversely. Nothing can substitute for data. Where data are weak or are lacking, the results of any analysis based upon them areweakened. There are no "tricks'* to get around this limitation. Only data improvement through arduous and assiduous research can raise the level of analysis.

It Is still too early toefinitive evaluation oftechniques. Mo one questions that Interindustry analysis has some capabilities not possessed by other forms of analysis, that Itlexible and powerful tool of economic analysis, and that, used Judiciously, Italuable analytic framework for many quantitative economic problems. So far, however, interindustry analysis cannot be said to have been tested and proved as an accurate predictive device in the eom-prehenalTe detail which it implies.

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to.*Jlberal sense, interindustry, analys^cannot be r'tested.gy It can be compared, and Its consistency can be checkedPredlcUon resulting from analysis can be compared with realized results, but this operation testa the techniques only In part, since the real predictive element Is apartthat Is. Independent of the analytical technique.

The basis for Judgment of analytical results Is theof the data with the facta and the correspondence of the assumptions with the operational procedures. When these conditions hold, analytical results can be counted upon as reliable "Oood" and "bad" are nusnomeni when applied to internally consistent theoretical frameworks. Suchmay be useful or not useful for purposes of solvingresearchentative favorable evaluation can be given Interindustry analysis.

Economic Intelligence dataearing on theof the economy of foreign powers are of three general kinds: direct Intelligence, derived Intelligence, and analogous data.

Direct economic intelligence data are relatively scarce Two kinds of direct intelligence are available. The first consists of official statements, and the second Is classified Information obtained from observation, documents, and other sources. Both of these kinds of data are spotty and Inadequate. In addition, the data are of uneven quality and reliability.

Derived intelligence is that Information which can befrom what Is known directly. The basis of themay be tbe complementarity of Industrial products, technology, or many other situations In which an unknown quantity may be deduced from known quantities.

Analogous Information Is that body of data known andfor some country other than the foreign power under Study which can be used to fill gaps In direct and derived Intelligence. Information concerning the TJS economy,of Its abundance and ease of acquisition, has become the standard analogy.

Any research effort. Including Interindustry research, must necessarily make use of all three kinds of data and data from

i-<i? /

mary support data. Analogous information. If used at all, should be used sparingly and only to fill gaps which must necessarily be filled.

in Interindustry research, because of the detail required, the weighting of various kinds of data is often quite theof the Ideal. In order toystematic study of the economic structure of the USSR, it is necessary to borrow extensively from US information on technologicalDirect intelligence and derived Intelligence arein establishing the control totals and for some of the estimates of Inputs and allocations.

At the very best the data used in interindustry research are of questionable reliability. In some cases It Is possible to assign error limits for individual figures, such asingle product. But when this estimate is aggregated with other such figures having differing reliability and with some data on US industry, It becomes difficult to assess the reliability of the final figure.

Weaknesses in data and lack of data are the most serious problems in Interindustry analysis of foreign powers.data are mixed with the less accurate, and the finalbecause of aggregation and forcing to fit the control totals,ixed quality without any way to Identify the more from the leas reliable

Since the technique Is oriented to revealing Indirect effects, the data weaknesses may resultituation In which the error limits are as much as. or greater than, the Indicated effect In this case the actual indirect effect may be bah* or twice as much as that indicated. There is no way out of the dilemma. The deleterious effects of inadequate data can be mitigated In some measure. The only satisfactory remedy is to raise the level of confidence In the data by continuous research.

Interindustry research serves several Important uses InIntelligence. Mot the least among these uses at the

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The cost structure and use pattern of ann Integral part of interindustry analysis, and they are also of considerable inteUigence value in and of themselves. Alone or in combination with other data, Interindustry tabulations can form the frame of reference for analysis of products, product groups, and large sectors of the economy.

Nearly all sector and product studies haveart of their research effort the estimate of output, of some critical Inputs, of major end uses of the item, and of possible substitutes. These data are substantially the same as those needed In inter-industry analysis.ouble purpose is served inup these data: direct use In sector studies and useart of Interindustry studies.

The most significant area of analysis is that of deterrnlntng the Implications of changes in the economy which affect the sectorarameter Is an element in the economy which Is fixed for any postulated situation but which may change as the postulated situation changes. The parameters are (a) allocation of sector outputs to final demand, (b) the Input-output coefficient for particular sectors, and, in special cases, (c) the output of specific sectors. These three elements are fixed for any given time periodiven set ofAnalyBis proceeds on the basis of postulating changes in any one of them and working out the Implication of these postulated changes.

There are Innumerable examples of changes in finalFrom the point of view of economic Intelligence,important examples are analyses of mobilization andto determine the capabilityoreign powerthe demands of such action. Interindustryparticularly valuable for such an evaluation, since thisanalysis Is explicitly designed to bring outilitary program and economic mobiliiaUonwar. Forirect requirement for>V- '

products by the military services might be easily withinj ij '

apabilities. But tn order to attain the higher level of demand^ercent more aluminum products are required ,

upon them Levy of

war requirements resulting from the expansion of supporting sectors of the economy may make the difference between the ability of the economy to meet the new demands or theof cutting back Important sectors.

The analysis of mobilization and war demandsew element of uncertainty. The data on direct requirements, whichart of final demand, and data on cutbacks and shifts in consumption and investment are hypothetical. But these data must reflect accurately the postulatedor the analysisimple exercise in logic. The demands of the war machine must be quantified and tabulated in terms of the sectors of the economy analysed. Thisa conversion from specific end products, such as tanks and aircraft. Into steel and aluminum products. Thesector must be analyzed to determine the extent of cutbacks which It can endure. The composition of thesector will shift, and it may be reduced. The demands of these sectors must be quantified. When all of the relevant data are assembled, they may be analyzed with Interindustry techniques.

The implication of the new final demands may be traced through by tbe Iteration process, singly and/or collectively.esult of the new demands, new direct plus new Indirect requirements must be met sector by sector. These newoutputs must then be matched with independentestimates of maximum output and capacity of eachThese estimates Inject another element of error which can vitiate the results of tbe analysis.

A single estimate for mobilization and war demands is not sufficient Several sets of hypothetical final demands can be analyzed and their Implications traced. Each set Is presumed to represent different circumstances. In this way an array of estimates of capabilities can be made.

The elements of strength In interindustry analysis ofand war programs lie in its ability to determine indirect requirements for each sector of the economy, thai showing the

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analysis lies primarily in Its requirements for data. The data

which form the basic structure of the economy may well

subject to considerable error. Military, investment, anddemand cannot be determined accurately In many cases. In the verification procedure. Independent estimates ofmay be in error. Errors introduced by the data may be so great as to undo the benefits to be derived from the calculation of indirect effects. No precise assessment of reliabilityradual Improvement of the data can be counted upon to Improve reliability and reduce uncertainty.

Within the framework of interindustry analysis It Isthe data, to become much more sophisticated than Isabove. Forlow interindustry systemcoupledonsumptIon-investment-military final

Using this basic framework, the new final demand allocations can be fed In by quarters and direct and Indirect requirements can be calculated by quarters. Proper accounting can be made for lead times by this process. Furthermore, by expending the simple flow systemlow and capital-capacity system It is possible to bring the capital requirements explicitly intoInterregional transactions can also be considered. Both require additional data and additional assumptions. At the present time, refinement of the flow (or currentInterindustry system for Intelligence purposes is not practicable.

A second area of analysis Is the problem of Interdiction. The foreign trade transactions of the economy are generallyart of final demand. Elimination of imports and exports In whole or in part constitutes Interdiction; but,

since they are in final demand, the Implications for the rest*

the economy may be traced out as indicated above. Another

use, perhaps more important for the intelligence community,

Is that of deterrninlng the effects of air damage on the econ-.

omy. An air strike would reduce capacity and hence output

In many sectors. By firing the' output of those sectors which

have been damagedpecific level and treating the other

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sector outputs as fixed at the same level as before the air strike.

deliveries to final demand required under postulatedSeveral final demands can be determined. The output of sectors not damaged In the strike would readjust to the new conditions. The Interdiction problem gives rise tosolutions, and no single solution has any more merit than another, since there are many possible ways to adjusteduction in output for one or more sectors.

Because oi the lacknique solution, the Interpretation oi results of an analysis of interdiction is especially difficult. The limitations of data are another serious obstacle to this type of analysis. Even so. the interdependence of the economy makes it Important that interdiction problems be analyzed by techniques in which this characteristic Is explicit. Forsuppose damage to the aluminum products sectoroutput byercent. If the interindustrialareercent or more, there will be no deliveries to final demand unless sector outputs are reshuffled ao that aluminum-demanding Interindustry sectors reduce theirand hence their consumption of aluminum products. Onlyeneral interdependence schema is it possible tothe full Impact of Interdiction.

The third area of analysis is the consideration ofAlthough this problem Is conceptually separate, Itfact usually coupled with changes in final demand andThe basic descriptive datathe input per unitfor all sectorsare usually assumed to be fixed forpurposes. The coefficients are presumed to reflectnecessity, and it Is on this assumption thatIncluding that discussed above, is based. Usingprocess, however, It Is not necessary to adhereto this assumption. The coefficients may be changedthe changed

The analysis of structural change, whetherroblem In Itself orart of the analysis of war or mobilisation or interdiction, tmplles that there are data concerning such structuraln reality this Is seldom the case, for most

.

At

of toeate .hypoiheUca^rwlth an empirical base limited to analogous information about the US economic structure. Despite this, structural change, however it arises. Is of sufficient magnitude that It must be taken into account.

The three types of analysis collectively would represent the Ideal analysis of capabilities. For instance.ypothetical war situation the economy must bear tbe demands ofand combat and at the same time sustain foreign trade Interdiction, substantial air damage, and loas (or gain) ofWhile adjusting to these severe conditions, thewoulderies of structural changes. Realistic postulates for all three circumstanceseliable structure of the economy would make possible more detailed estimates of capabilities than heretofore possible.

A number of ancillary analytical purposes can also be served by interindustry studies. Analysis by means of nationalalso suffers from weak and Insufficient data, and Inter-Industry studies offer an Independent method of building up these national aggregates. The relationship betweenproduction estimates and aggregates has beenexplored, and Interindustry analysis offers some hope for the Integration of indicators with aggregative analysts.

Interindustry analysis, expressedumeraire. Isystematic study of prices and the relationship of prices to real costs Such cost analysis is valuable not only In that It points to the drainiven sector on the allocation of materials to alternative uses but alsoeighting system for the construction of Index numbers for the economyhole and for various components.

No precise outline can be made of all the ancillaryof Interindustry studies. Many such uses areIn nature, and they tend to buttress analysis ofby providingonfirmation of results anda new source. Other analytical uses, such as eajunlna- )of prices and costs, break new ground. It Is quitethe ancillary analytical uses will prove, at least in the

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designed.

Wbile tbe ultimate aim ol interindustry studies is analysis, tbere are within the process many benefits to be derived by looking at the economyouble entry accounting system and organizing the data inanner that economic Interdependence Is revealed.

One of the most significant of these organizational uses Is its educational value.esearch effort organized hugely along functional lines It Is an too easy to concentrate uponproducts and industries to the relative neglect of the over-all economy. The interindustry approach, by putting the economy and all its components into perspective, enables one to grasp details simultaneously with tbe over-all situation. At

a glance the complicated industrial mterrelatlonshlps are

vealed, while at the same time the over-all functioning of the economy can be comprehended.

Since Interindustry analysis dependsrossof costs and shipments of each sector and its components, the approach naturally leadsiling system In which all of the information about the economy can be conveniently and logically placed. The interindustry tabulation itself Is, iniling system. Behind the tabulationoreset of flies which encompasses all relevant data, such as prices, production (in heterogeneousechnicalcost and shipment data, and other such Information

The mtermdustry file Is not static; itonstantlychanging compilation of data. It is arranged Inanner that there are continual accretions to the base fund of knowledge of the structure of the economy. New data can be added so that they have an immediate Impact on the final tabulation; better data replace the old, and more or less,

prehensivc Infonnatton fits into the filingay

that theresults Is immediate. This implies

that no interindustry tabulation la final rpectflc

abulation can be drawn out of the files, assembled.

reconcUeji. and used.^Aj.another^ttmc.TpWi nother Ubulatlon can be developed In the same manner. Thus the interindustryontinuing and graduallybody of data, stands ready on short notice toapabilities estimate with the latest data available.

The filing system implied in the Interindustry approach makes possible another important organizational use- This is In the testing of the reliability of data and checking theirWhen the data have been assembled. It is possible to evaluate their reliability by comparing them with other data. Every saleroduct isost to some sector, and every inputartector's output. Hence the data can be checked and cross-checked. Data which are inconsistent can be weeded out, and the general level of reliability can be raised. New Information can be compared with existing data, and the relative merits of each can be assessed.

Finally, the Interindustry approachuide toresearch not only along interindustry Lines but also in other methods. Qaps in the data can be spotted readily, and steps can be taken to remedy them. If price Informationarticular group of products, or production data for some sector, or any other Information is needed, the technique, backed by Its organizational system, makes It possible to detect theelements. It may become clear, because ofof data, that some types of analysis cannot be undertaken but that other kinds of analysis can be profitably expanded or that other techniques should be exploited.

These applications of Interindustry studiesdirect useanalysis, and improved organizationmust bea whole and none slighted. They complement onetendency might be to get on with the analytical usesthe other uses. This would be dangeroui Theis one which Improves with age; the analyticalthe analysis of parametric change, may well be .years In the future. This is riot only because theof research are expensive and inefficient but also-

cause data exploitation and preparation, both for theand final demand sectors, are difficult and ttme-consum-

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mga'cuvitles.

ers and to neglect other analytical uses and the benefits to be derived from Improved organization would be to fall to use the framework of interindustry techniques to Its fullest extent.

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