Merging input-output (IO) and econometric (EC) models has gained increased attention in regional science literature because it combines the dynamic characteristics of time series with the detailed intersectoral disaggregation of IO to model the time path of the economy. It provides more accuracy in representing economic structure and structural shifts within an economy. This article applies IO analysis and integrated IO-EC modelling to analyse the Illawarra economy. The integrated framework is found to be superior based on its forecasting abilities and impact analysis accuracy. It is applied to forecast the effects of BlueScope Steel shutdown in the Illawarra.
The integration of input–output and econometric models at regional level has gained popularity for its superior performance in forecasting employment and examining the impacts of policies. There are a number of approaches to integrate the two models. This paper examines the integration of input–output with econometric modelling using two merging methodologies, namely coupling and holistic embedding. Each methodology is analysed with respect to the accuracy of its results of total and sectoral employment forecasting. Both methodologies are applied to a regional economy in Australia. The methodology which shows superior forecasting accuracy is applied to examine the significance of sectors that generate the highest number of employments relative to other sectors.
Since the pioneering work of Glickman on embedding an input-output (IO) module into an econometric framework, 1 there has been a plethora of studies on combining an IO analysis with an econometric model in the literature. The popularity of the combined framework is due to its superior performance in economic forecasting and higher accuracy in impact analysis. There are a number of approaches through which an IO model is combined with an econometric model. This paper examines three approaches to combine IO analysis with econometric modelling, namely embedded, coupled, and linked. All three approaches are applied to the Illawarra economy in a series of ex-post forecasting experiments. Each approach is applied to a hypothetical scenario of sectoral reallocation of government expenditure, to investigate certain key sectors that provide more jobs per dollar of expenditure relative to the other sectors. The comparative forecasting performance and impact analysis accuracy of each approach is examined.
Most of the current regional planning models rely on feed-forward trend analyses. However, economic, demographic, land use and infrastructure systems are far from isolated linear systems. They are in fact interdependent dynamic systems where a change in one systems impacts all other interdependent systems. Therefore, a change such as the addition of a new expressway to the transport network not only will bring changes in the transport system, but also in other systems like land use and demographic. Vision Illawarra is a modern tool that follows the system dynamics approach to incorporate these feedback loops between systems. Planners and policy makers can use Vision Illawarra to understand the holistic change a planning or policy decision will bring to the regional setting, thus enabling them to make smart strategic decisions for the benefit of the region.
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