Agriculture’s Inter‐industry Linkages, Aggregation Bias and Rural Policy Reforms

Abstract

As agricultural policy reform and its effects have become increasingly territorialised, analyses that attempt to explain or predict impacts need to be both more localised and to identify spill-over effects. Local and regional general equilibrium approaches have become increasingly popular because they can extend predictions of policy shocks obtainable from partial equilibrium sectoral models to identify the wider effects. However, agriculture is usually described as a single sector in input-output accounts, whereas policy shocks that affect constituent commodities with differential impacts will have inter-industry effects that are different to those implied by average input-output coefficients. Regionalisation of aggregated input-output tables adds further to these difficulties. The objective of this study is to develop a practical method for dealing with these problems. It describes the theoretical basis of aggregation bias and shows how it can be measured, in two contrasting case study regions in the UK and Sweden. Having established that this is a significant issue, a simple but effective procedure is demonstrated, based on additional information on variable costs, which transforms policy shocks from a direct change in agricultural output to that transmitted to the suppliers of inputs. This method provides an impact close to that which could be calculated if the general equilibrium system had indeed been disaggregated, and supports use of this approach in impact studies where insuffi-1 Gunnar Lindberg is with Nordregio, Nordic Centre for Spatial Development, Stockholm, Sweden. Yves Surry is with the cient time or funding are available for complete disaggregation of an agricultural sector's regional accounts.

Evaluating the FLQ and AFLQ formulae for estimating regional input coefficients: empirical evidence for the province of Córdoba, Argentina

“…Here the FLQ clearly outperformed its predecessors in terms of generating the best estimates of these multipliers. Recent applications of the FLQ approach include Lindberg et al (2012) and Hermannsson (2015).…”

Agriculture’s Impact for the Economy: Inter-Industry Linkages and Multiplier Effects

“…This model has traditionally been used to study the potential of final demand changes in one or more sectors to simulate wider impacts in output throughout the economy. Compared to computable general equilibrium (CGE) models that have also been developed to explore various dimensions of rural economic change at regional or local level, Leontief model is based on constant returns to scale production functions and assumptions related with factor supply (Kilkenny and Partridge, 2009;McGregor et al, 1996;Lindberg et al, 2012). Fixed coefficients of production assume a production function with linear constant returns to scale.…”

“…IO tables are often aggregated to facilitate data presentation and management, even though disaggregated tables could give more precise insight about inputs and outputs of smaller sectors (Lindberg et al, 2012). In WIOD, agriculture, forestry and fishing are subdivided into three categories: A01 -Crop and animal production, hunting and related service activities; A02 -Forestry and logging; A03 -Fishing and aquaculture.…”

Agricultural Economics in the JAE: Some Editorial Reflections

“…Three, in particular, stand out for me. Lindberg et al (2012), not only document the potentially substantial aggregation bias inherent in identifying the general equilibrium (and disequilibrium) effects of agricultural change, but also offer a practical method of dealing with the issue for impact analysis, using variable cost information to estimate second-round output effects. This seems to me to be usefully relevant to many efforts to identify potential policy and circumstantial 'shocks', yet has only been cited five times.…”