Linking hypothetical extraction, the accumulation of production factors, and the addition of value

Abstract

In industrial ecology, approaches have been developed to analyse the contribution of specific sectors to environmental impacts within supply chains. In economics, the analysis of key sectors has been undertaken through hypothetical extraction, in which the role of sectors is assessed as the effect of their removal on the solution of the input-output model. This manuscript offers a formal investigation of the relationship between these. It shows that both the analysis of supply chain impacts and of intersectoral linkages can be seen as special cases of a more general hypothetical extraction method (HEM) which also allows for the (partial) extraction of individual transactions. Further, the price model for HEM is introduced to identify the contribution of the extracted (target) sectors to the price or footprint of a commodity. It suggests that unit inputs of production factors should be included in linkage analysis, offering clearly interpretable results.