OVERVIEW

Every Industry needs to purchase goods and services (Commodities) from other Industries (and even from itself!) to operate their business. Formerly known in IMPLAN as Intermediate Expenditures, Intermediate Inputs are purchases of non-durable goods and services such as energy, materials, and purchased services that are used for the production of other goods and services, rather than for final consumption. These are known as Industry Spending Patterns.

IMPLAN has developed regionalized Industry Spending Patterns by taking national-level spending patterns and combining it with regional industry-level data and Trade flow data. These regionalized Industry Spending Patterns reflect the Industry demand that is sourced locally. This article defines a few key terms and describes the data sources and processes IMPLAN employs to obtain regionalized Industry Production Functions. 

KEY TERMS

GROSS INPUTS

The total dollars spent on a given Commodity by an Industry are known as Gross Inputs. Total Gross Inputs, therefore, represent the total dollar value of all Intermediate Inputs purchased by the Industry. 

This data can also be described using Gross Absorption Coefficients which represent the percentage of each Industry’s Output that is spent on each given Commodity (good or service) as part of its annual operations. 

REGIONAL INPUTS

Intermediate Inputs cannot all be sourced from within the region; some Intermediate Input purchases are imported from other regions (as captured by the Regional Purchase Coefficient (RPC). The total dollar amount spent locally on a given Commodity is known as Total Regional Inputs and is equal to the Gross Inputs multiplied by the RPC.  

Regional Absorption Coefficients reflect the proportion of Intermediate Inputs expenditures that are purchased locally. Regional Absorption Coefficients are calculated as Gross Absorption multiplied by the RPC. 

DATA SOURCES

The Bureau of Economic Analysis’ (BEA) Benchmark I-O Tables (which are released every five years), are the primary source for IMPLAN’s Industry scheme and Intermediate Input data. However, IMPLAN has developed techniques to maintain a larger list of Industries than currently available from BEA data (as described in Industry Scheme) as well as more specialized Industry Spending Patterns for select Industries. 

As mentioned previously, these national-level production functions are combined with sub-national data on Value Added and total Output by industry. Read more information about the data sources and estimation processes for this data in Value Added by Industry Data and Industry Output Data. IMPLAN also incorporates Trade data. Read more about how this is done in Estimating Trade Flows.  

UPDATING AND REGIONALIZING NATIONAL INDUSTRY SPENDING PATTERNS

While IMPLAN's Industry Spending Patterns are based on the BEA Benchmark I-O Tables (augmented for greater industry detail as described in Industry Scheme), the Gross Absorption Coefficient values for all regions change year to year as they are forced to conform to new Industry Output and Value Added totals and new commodity supply, demand, and trade values each year, as follows:

  1. We start with the latest BEA Benchmark-based Gross Absorption values.
  2. We derive current Industry Output and Value Added, which dictate total Intermediate Inputs (II) for each industry. We adjust the BEA Benchmark-based Gross Absorption values upward or downward proportionately to conform to the new total II values for each industry.
  3. To this we add Final Demand for each Commodity to arrive at Total Commodity Demand.
  4. Using the Benchmark Byproducts Matrix and current Industry Output, we derive current Industry Commodity Supply.  
  5. To this we add Institutional Sales and Imports to obtain Total Commodity Supply by Commodity.
  6. The columns of the USE matrix (industry purchases of commodities) were forced to sum to Industry Output less Value Added (column controls) in Step 2. Now, the rows of the current USE matrix are forced to sum to Total Commodity Supply less Final Demand (row control totals). This will be the first time the gross absorption coefficients will change non-proportionately between the commodities.
  7. This column and row balancing is repeated until no further adjustment is needed. This method is known as a RAS.

Gross Absorption Coefficients for a particular Industry will also vary across regions because the ratio of VA to Output varies from region to region, which forces the national Gross Absorption Coefficients to adjust (so that the sum of an Industry's Gross Absorption Coefficients plus that Industry's total VA = 1.0). The assumption is that the local Output and VA data are correct, and the national coefficients need to adjust to fit the local situation. 

Finally, applying the Regional Purchase Coefficients (RPCs) from the Trade Flow data to the Gross Absorption Coefficients yields Regional Absorption Coefficients by pulling out the imports (which also vary by region). Regional Absorption Coefficients, therefore, represent the percentage of each Industry’s Output that is spent on local production of each given Commodity as part of its annual operations, and are affected by new data on Foreign Trade obtained annually.  

RELATED ARTICLES

Understanding Intermediate Inputs

Industry Scheme

Industry Output Data

Value Added by Industry Data

The RAS Method