On the 26th of April, City-REDI hosted a gathering for those interested in the development and application of regional input-output (IO) techniques in the UK. Matt Lyons summarizes the papers shared and the discussions had about the shared challenges and opportunities for researchers in the field.
It is an exciting time for an input-output scholar in the UK!
In recent years there has been a resurgent interest in trade, regional productivity and regional economies in the UK linked to issues of Brexit and the Levelling Up policy agenda. Alongside this, there appears to be increased interest in the ability of input-output to provide evidence for, and evaluation of, these issues. The growing interest is reflected both in data developments by the ONS and national governments.
In November 2022, the Northern Ireland Statistics and Research Agency (NISRA) published supply and use tables for Northern Ireland as part of its economic accounts project. In 2023, the Welsh Government started the development of the nation’s first official input-output tables. Scotland continues to produce national input-output tables. England is a notable exception – with no published IO tables for England and no multi-regional table that is publicly available. The UK is also the focus of international organisations as they look to develop regional input-output tables.
IO tables are being pulled into (fairly) new areas
As the presentations on the day (listed below) suggest, input-output techniques are being applied to more diverse and novel areas. Extensions to tables to cover the environment, inclusivity, and poverty are becoming more commonplace. Novel satellite accounts are being compiled to address niche sectors and issues such as Human Capital, ICT and the creative industries.
These new developments are exciting, but challenging to do well and subject to continued funding and interest – often a challenge in an academic environment.
How can we better harmonise our work and prepare for the future?
A challenge for IO scholars in the UK and internationally is the tension between the desire to produce bespoke tables that can tackle regional and national priority areas vs achieving harmonisation for comparative projects. Separate disaggregations of sectors are valuable and evolve organically following the needs of project funders and regional and national policy priorities. We can see this in Wales with prior tables disaggregating electricity supply by generation type. In Scotland, whiskey and spirits are a key export and can be found disaggregated from other alcoholic beverages within national tables.
However, different sectors in different regional and national tables within the UK can make sectoral comparisons challenging. Potential solutions to this are to keep disaggregations transparent, where possible to include bridge matrices and to use the same language and terms for different processes.
Opportunity to prepare for the future – move from Gross Domestic Product (GPD) to Net National Product (NNP) etc – national accounting is likely to change at the international level
Another topic of discussion was the ongoing debate about the movement of System of National Accounts (SNAs) away from gross measures of output GDP that fail to capture the wider impacts of welfare towards more holistic measures like net national income (NNI). A detailed discussion on these issues can be found in the UNSTATS 14th Meeting of the Advisory Expert Group on National Accounts, 5-9 October 2020, in which the arguments for net indicators are presented:
“…it is strongly advocated to do yet another effort in putting far greater
emphasis on net indicators, as opposed to the current use of gross indicators. This would not only justifiably correct the most frequently used macro-economic aggregates for the consumption of fixed capital (depreciation), but also for the running down of non-renewable natural resources, and the non-sustainable use of biological resources”
Similar discussions going on in the Office for National Statistics with the publication of Net Inclusive Income (NII):
“…NII will capture both, for example, the benefits we accrue from trees, such as carbon sequestration, and addressing other pollutants, absorbing floodwater, timber and leisure, but also the losses when the stock of trees is depleted, either through felling, storm damage or climate change.”
As IO scholars look towards developing new tables at different scales it is valuable to have these discussions with the opportunity to be aligned with changes happening at the international level.
The day saw six presentations on IO research from methodological developments, environmental applications and trade.
Jobs in Trade – The Who, What, and Where that Help Put the Why in Trade Policy
Presenter: James Black, Fraser of Allander Institute
Globalisation has significantly changed the UK economy but has been increasingly scrutinised over the past decade. Arguably the greatest failing of developed country trade policy in recent years has been the lack of attention paid to the interests of the ‘left behind’. This research aims to understand the economic and socioeconomic impacts of trade on the UK economy. The research combines data on firms and the labour market with UK Input-Output tables to assess the impact of exports on exporting industries and their supply chains. Our results describe this impact by labour market characteristics such as sex, age group, and occupational group as well as explore the extent to which employment is supported by exports to individual export destinations. Our results provide useful context to policymakers trying to understand the differential impacts of trade.
The City within the Global: a methodological contribution to calculating urban emissions metrics
Presenter: Dr Kevin Connolly, University of Strathclyde
In line with national targets, sub-national governments – including cities – are introducing targets to reduce the emissions associated with economic activity within or associated with a particular geography. Cities are important drivers of not only emissions but also economic activity and are embedded into complex economic systems which reach beyond their boundaries, which can raise major issues in identifying whether a city is assisting in promoting sustainability across a wider spatial level. This paper set out a methodology to downscale global Input-Output tables to city level and use these to calculate simultaneously in a consistent economic and environmental framework production- (territorial) and consumption-based carbon accounts at the city level. Illustrating this for the case of Glasgow, Scotland, we show that the city’s territorial emissions are significantly lower than its consumption-based carbon footprint (considering both the Areal and Personal Carbon Footprint), but that both metrics are sensitive to assumptions about the emissions intensity of individual sectors. Our results highlight the importance of data quality and accuracy, and the benefits of local knowledge, rather than the unquestioned use of national metrics.
A multi-regional macroeconomic input-output model for the UK.
Presenter: Professor Kurt Kratena, CESAR
The presentation of a new version of City-REDI’s multi-regional macroeconomic IO model (NUTS1 and 30 industries) comprises the description of the main modules of the model (status quo), two exemplary simulations and an outlook of future model development and its potential.
The existing modules of the model are a module of factor demand and prices, a module of households and some first steps of a labour market module. The factor demand and price module takes into account substitution and technological change. The module on households incorporates a detailed description of income distribution and consumption structures. The module of the labour market for the moment only contains labour demand by occupations and skills. This part of the model shall be extended in the next future by setting up a regional occupational matching models and wage functions.
The two exemplary applications of the model that have been presented are an income shock to consumers in each region and a simulation of levelling-up R&D policies taking into account both R&D expenditure mechanisms as well as impacts on TFP.
The potential of the model (once the labour market module has been further developed) includes regional levelling-up policies, public sector policies (e.g.: childcare), labour market analysis (e.g.: skill shortages) and some applications for academic publications.
The SEIM-UK household module
Presenter: Dr Huanjia Ma, City-REDI
The presentation showcases the household module extension to the existing SEIM-UK model. The module disaggregates the household sector into quintiles, allowing for analysing the effects of exogenous shocks on household consumption and wages across different income brackets and enabling a more granular understanding of the economy. Data sources and the applied methodology were thoroughly explained in the presentation.
The presentation included an examination of the interrelational multiplier for each quintile, shedding light on the distinct economic roles these groups play. Further depth was provided by conducting a Field of Influence (FOI) analysis in line with the framework established by Sonis and Hewings (1992). The analysis indicates that the bottom 20% of households exert the strongest influence on the economy through wages, while the top 20% hold significant sway over the economy via consumption. These intriguing insights underline the complex nature of economic interactions and the need for policies tailored to the unique influences of different household income groups on the broader economy.
From Regional IO to Regional Environmental Footprints.
Presenter: Professor Calvin Jones, Cardiff University
This project sought to estimate a ‘holistic’ carbon footprint for tourism in and to Wales. The regional IO Tables were extended to include estimates of territorial GHG emissions from 64 industries. Meanwhile, the environmentally-extended WIOD database was combined with UK Analytical IO Tables to estimate the GHG content of rest-of-UK imports into Wales, within a 2-region MRIO setting. Rest of World emissions relied upon OECD estimates of GHG embedded in the exports of the UK’s global trading partners. A separate bottom-up analysis estimated GHG from travel fuel via an origin-mode matrix for different classes of visitors.
The analysis revealed how a number of choices are available to those wishing to estimate the climate impacts of the global supply chain that supports regional consumption but with no clear and accepted ‘best option’. More critically, even regional emissions (and decarbonisation over time) are difficult to estimate for tourism given the paucity and low quality of visitor expenditure data.
Using crowdsourced data to estimate the carbon footprints of global cities
Presenter: Xinlu Sun, UCL
Cities are at the forefront of the battle against climate change. However, intercity comparisons and responsibility allocations among cities are hindered because cost- and time-effective methods to calculate the carbon footprints of global cities have yet to be developed. Here, we establish a hybrid method integrating input–output analysis and crowdsourced data to estimate the carbon footprints of global cities. Using city purchasing power as the main predictor of the carbon footprint, we estimate the carbon footprints of 465 global cities in 2020. Those cities comprise 10% of the global population but account for 18% of the global carbon emissions showing a significant concentration of carbon emissions. The increased carbon emissions that come from high-consumption lifestyles offset the carbon reduction by efficiency gains that could result from compact city design and large city scale. Large climate benefits could be obtained by achieving a low-carbon transition in a small number of global cities, emphasizing the need for leadership from globally important urban centres.
This blog was written by Matt Lyons, Research Fellow, City-REDI / WMREDI, University of Birmingham.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WM REDI or the University of Birmingham.