Lessons from the debate on Cole's model closure

Abstract

Cole (1989Cole ( , 1997Cole ( , 1999 advocates the introduction of expenditure lags and the fullest possible closure of single-region input-output models. Jackson et al. (1997, 1999) claim that closing also with regard to the Rest-of-the-World leads to inconsistencies and zero exogenous demand, which makes impact studies impossible. Using somewhat different arguments I agree with them: endogenous interregional feedbacks are conceptually impossible outside a full interregional model. Two hardly discussed points, however, remain for further research. First, closing with regard to all other regional demand is precarious too, as it empirically and theoretically amplifies the one-sidedness of the demand-driven input-output model. Realistic impact studies ask for models including supply-side aspects. Second, adding expenditure lags is an improvement, but the way in which this can be done and should be done requires further theoretical development. JEL classification: C67, D57, E17, R15Note of the Editor-in-Chief: While the preparations for this issue were in progress, the regional science community was struck by the information that Moss Madden fell seriously ill shortly after his return from South Africa, where he participated in an RSAI symposium. Only a few days later, everybody was shocked by the announcement of his sudden untimely death at the age of 53. Professor Moss Madden was an internationally renowned scholar and highly appreciated colleague. His academic legacy comprises numerous seminal contributions to input-output analysis, simulation modeling, and forecasting in regional science. Moss was a good friend of many of us active in regional science, and will be missed. We offer our sincere condolences to his family, friends, and colleagues. As a tribute, commemorating his relentless efforts to advance our knowledge of regional input-output analysis, we dedicate this article to him. It reflects on the debate to which Moss contributed so much.

Comparing the Economic Impact of Natural Disasters Generated by Different Input–Output Models: An Application to the 2007 Chehalis River Flood (WA)

“…Its core assumption is that an income shock in the economy propagates with different levels of inertia (lags) at various points of the supply/demand chain that the instantaneous model ignores. However, Cole advocates fully closing the single-region model (i.e., endogenizing all components of final demand including trade), which led to criticisms by Jackson et al (1997), Jackson and Madden (1999), and Oosterhaven (2000) since it makes the model theoretically inconsistent and unsolvable.…”