INTRODUCTION
An Industry is a group of establishments engaged in the same or similar types of economic activity. Industries produce and sell goods or services, also known as a product or Commodity. A Commodity may be produced by one or multiple Industries or Institutions, therefore an Industry or Institution can make more than one Commodity.
Industry activity forms the basis for constructing the Social Accounting Matrix (SAM) and conducting Economic Impact Analysis. However, sometimes it is better to focus an analysis on the product, rather than the producer. Read Industry vs. Commodity Output to learn more.
INDUSTRY
An Industry is a group of establishments engaged in the same or similar types of economic activity. An establishment is an economic unit, business or industrial, at a single physical location where business is conducted or where services or industrial operations are performed. One or more establishments can make up an enterprise or a company. Much of the data used in IMPLAN originates from surveys and other information collected from Industry establishments.
INDUSTRY CLASSIFICATION
Sectoring schemes provide a means of classifying and aggregating Industry and Commodity data. IMPLAN’s current unaggregated U.S. Industry Scheme includes more than 500 Industries. Each Industry is classified with an IMPLAN code and description. The IMPLAN Industries are largely based on definitions put forth by the U.S. Bureau of Economic Analysis (BEA), which uses the North American Industry Classification System (NAICS).
NAICS is a system of industrial classification developed and used by the U.S., Canada, and Mexico for grouping establishments by similarity of production process. The NAICS structure uses a hierarchical 6-digit system to identify Industries within the economy. The two digit NAICS codes represent a broad sector of the economy, which may include many Industries. The subsector, industry groupings, and industry structure represent the subsequent digits (3-5). The sixth digit designates the national-level Industry, which is the most detailed level within the classification system.
As the IMPLAN Industry Scheme is based largely on the BEA’s Benchmark I-O Accounts, IMPLAN Industries represent rollups of various NAICS 6-digit Industries. There is a crosswalk available between NAICS codes and IMPLAN Industries for each Industry Scheme and NAICS code manual. However, not all IMPLAN Industries are classified based on NAICS codes. These include construction, owner-occupied dwellings, government enterprises, Commodity-only sectors, and administrative government. Learn more about the unique aspects of these Industries in Special Industry Definitions.
INDUSTRY LEONTIEF PRODUCTION FUNCTIONS
Production Functions detail the relationship between an Industry’s inputs and its Output. In effect, they trace the backward linkages, or the interconnectedness of an Industry to other Industries from which it purchases inputs to produce its Output and to Institutions to which it pays Labor Income, Taxes, and more. IMPLAN uses the Leontief Production Function (LPF), also known as the Fixed-Proportions Production Function and assumes that inputs and outputs increase proportionally to one another and that the same quantity of inputs is needed per unit of output.
The LPF of an Industry in IMPLAN determines how each Industry will allocate Output to continue to operate. Each Industry in IMPLAN has a unique LPF that reflects the mix of inputs required by each Industry in order to produce a unit of Output (in terms of dollar value). An Industry’s Output is the sum of its components, which, for the U.S.-based Products, include Intermediate Inputs, Employee Compensation, Proprietor Income, Other Property Income, and Taxes on Production and Imports net of Subsidies. Each Industry allocates a different share of Output to each of the component parts and requires a level of labor to meet production. Read The Leontief Production Function in IMPLAN and Understanding Output to learn more.
Input-Output models typically assume that all firms within an Industry are characterized by a common production process. If the production structure of the initially-affected local firm is not consistent with the average relationships of the firms that make up the industry in the I-O accounts, then the impact of the change on the local economy will differ from that implied by a regional multiplier (Bess & Ambargis, 2011). In IMPLAN, edits can be made to the production function of an Industry in order to model a distinct firm.
The BEA is the primary source for IMPLAN’s Industry Production Functions. However, there are some exceptions. More detailed information can be found in IMPLAN Data Sources, Industry Scheme, and Data Sources for Select Industries: Farm, Construction, Railroad, and Government.
COMMODITY
A Commodity is a good or service. In IMPLAN, most Commodities are numbered according to the Industry for which the Commodity is the primary product by adding 3000 to the Industry number (e.g. Commodity 3001 is the primary product of Industry 1). There are some Industries that do not produce a unique primary Commodity because multiple Industries and Institutions can produce the same Commodity. For example, all of the electricity producing Industries produce the same single Commodity “electricity” even though they do so via different methods (fossil fuels, wind, etc.). Consequently, there are fewer Commodities than Industries in IMPLAN’s U.S. Industry Scheme.
Commodities are produced and demanded by Industries and Institutions. The supply of a Commodity produced in a Region is referred to as Commodity Production. Whereas the value of the Commodity demanded within a Region is referred to as Commodity Demand. Commodity values in IMPLAN are in dollars (Output), not units.
COMMODITY PRODUCTION
Commodities may be produced by one or multiple Industries or Institutions. The portion of Commodity Supply coming from each source for a given Commodity is called a Market Share. Commodity Output represents the total value of production of a good or service in a given year.
Industry Commodity Production is the total Output of a Commodity that is produced by all Industries. Industries can produce more goods in a year than they sell. When an Industry produces more than they can sell, Inventory "purchases" those goods and inventory stocks increase, with the goods to be sold in a later year. Institutional Commodity Production is the total Output of a Commodity that is produced and/or sold by Institutions (e.g. Government or taken out of Inventory). Commodities sold out of Inventory occur when Industries sell more than they produce. In this case, Inventory stocks decrease and the goods are sold out of Inventory rather than the Industry. IMPLAN Inventory sales and purchases are net values, meaning that for a given Commodity and year there will either be inventory sales or inventory purchases, not both.
An Industry or Institution can make more than one Commodity. The portion of an Industry's Output coming from the production of each Commodity it produces is called a Byproduct Coefficient. An assumption of Input-Output models is that an Industry uses the same technology to produce each of its Commodities (Guo, Lawson, & Planting, 2002). This means that an Industry's LPF is a weighted average of the inputs required to produce the primary product and each of the byproducts, weighted by the Output of each of the products.
Therefore, I-O models also hold the assumption that Industry Byproduct Coefficients are constant. An Industry will always produce the same mix of Commodities regardless of the level of production. In other words, an Industry will not increase the Output of one product without proportionately increasing the Output of all its other products. Learn more about the Assumptions of I-O.
COMMODITY DEMAND
To produce goods and services, Industries must also purchase Commodities. The purchases of non-durable goods and services that are used to produce other goods and services, rather than for final consumption, are an Industry’s Intermediate Inputs. These purchases generate the initial round of backward linkages for each Industry, its interconnection to other industries, or supply chain. Revenue earned from the sale of goods and services as inputs to other Industries is termed Intermediate Output for the producing Industry.
Institutions also purchase Commodities, but are final demanders. They demand goods and services for final consumption, not as Intermediate Inputs. It includes household consumption, government consumption, capital investment, additions to inventory, and exports, less the value of imports and sales by institutions (i.e., deletions from inventory and other institutional sales). Revenue earned from the sale of goods and services to Institutions for consumption is termed Final Demand for the producing Industry.
Commodities sold to consumers go through a series of activities from the factory door to the final sale, in which their value increases even though the product does not change. This process is called the Value Chain and includes the Product Value, Transportation Margin, Wholesale Margin, and Retail Margin. The price paid by Industries and final users for the goods and services they use is the Purchaser Price. The price received by the producer for goods and services that are sold is the Producer Price.
Commodity data can be viewed in IMPLAN’s Region Details on the Social Accounts’ dashboards. Users can also find Commodity data in Data Library, including Commodity production, demand, and Trade Flow estimates.
CITATIONS
Bess R. & Ambargis, Z.O. (2011). Input-Output Models for Impact Analysis: Suggestions for Practitioners Using RIMS II Multipliers. Presented at the 50th Southern Regional Science Association Conference, New Orleans, Louisiana. https://www.bea.gov/system/files/papers/WP2012-3.pdf
Guo, J., Lawson, A.M., & Planting, M.A. (2002). From Make-Use to Symmetric I-O Tables: An Assessment of Alternative Technology Assumptions. Presented at the 14th International Conference on Input-Output Techniques, Montreal, Canada. https://www.bea.gov/system/files/papers/WP2002-3.pdf
RELATED ARTICLES
The Leontief Production Function in IMPLAN
Commodity Data in Data Library
Written October 4, 2024