Forward linkages and direct output value

Hello In order to ensure that we are correctly addressing your question, we are hoping we can get a little more information from you. For example, what is it that you are actually trying to model with the software software? Are you trying to see the individual impacts of each of these lines of production? Are you trying to determine what your total Output value for the cheese Sector should be? Are you trying to find a way to pre-calculate exports from the model? Any additional information you can provide to help us be sure that we are giving you the best answer to address the problem you are examining would be much appreciated. Thanks!

I am trying to determine how to report the correct output value supported by the $100 million in hay production (including both backward and forward linkages). I am conducting the analysis in IMPLAN by entering the following values as changes in final demand in the local study area (using the simplified numbers from my earlier example in my original post): *$100 million in hay production *$100 million in dairy milk production (setting 'other crop' RPC at 0 to avoid double counting of hay production) *$150 million of dairy processing (cheese manufacturing, etc, setting 'dairy milk production RPC at 0 to avoid double counting of dairy production). From these three 'direct' impacts, I get the total impacts. My question is how to present the 'direct' impacts of the hay, dairy milk, and dairy processing to avoid double counting. I believe that instead of the $350 aggregate total ($100 million hay, $100 million dairy milk, and $150 million cheese), I should adjust the 'direct' values to be $280 million (which is the $350 million less the intermediate goods of $20 million hay and $50 million dairy production). It seems to me that this adjustment is required to not double count the intermediate inputs of hay and dairy milk that are included in the output values, respectively, of dairy milk and dairy processing. My question is whether this is a correct adjustment.

Hi Barbara, Is the assumption then that the $100MM of hay is all consumed exclusively in dairy production and the dairy production is exclusively used for cheese production? If you zero out the RPC for hay and dairy production there will not be any double-counting in the results, because the hay and dairy purchases will not be counted again in rounds of Indirect and Induced calculations. The issue of 'double-counting' in the Direct because the production of one element is included in the other, is actually part of the definition of Output and why some economists don't like to report this term and choose to report Value Added (GRP) instead, as Value Added does not include this 'double-counting' element. Your Direct Output should include the full value of sales at each level of production, because by definition Output = Intermediate Expenditures + Value Added so the commodities and services purchased are included in that definition. Value Added which an equivalent term to GRP is Value Added = Employment Compensation+Proprietor Income+Other Property Type Income+Taxes on Production, so reporting this value would be correct to address your concern. The reason that this is important, is that if you do not count the full level of Intermediate Expenditures in the Output value, you Multipliers (based on the equation Type SAM Multiplier = Total Effect/Direct Effect will yield an incorrect Multipliers. However, we also want to mention, that if other Sectors will be purchasing hay or dairy, you may not want to remove additional impacts to these Sectors by zeroing out RPC. An alternative to this, if you believe there should be additional impacts to these Sectors included in the Indirect and Induced, would be to remove these purchases from the spending pattern. If you want to pursue this methodology and need assistance with it or if you have any additional questions, please let us know.