RPC vs Supply/demand ratio

Hi Aaron Hendricks. As you probably know, the RPC represents the proportion of the all local demands (industrial and institutional) for that commodity that is supplied locally (i.e., by the region to itself). For example, an RPC of 0.8 for the commodity "fish", indicates that 80% of the demand for fish (by fish processors, fish wholesalers, foreign exports, and all other demands for fish in that region) are met by local fish producers. It also indicates that 20% (1 - RPC) of the local fish demand is imported. Supply/Demand pooling is the simplest method of the three – a commodity's RPC is calculated simply as local supply of that commodity divided by local demand for that commodity, capped at 1.00. It therefore assumes that local demand is completely satisfied by local production to the extent possible. As a consequence, there are only exports of a commodity if local supply of that commodity exceeds local demand for that commodity. This implies that there is no "cross-hauling". Cross-hauling occurs when a region both exports and imports a particular good or service. Cross-hauling can arise from the product-mix issue, whereby a sector produces a variety of products. For instance, a region may export apples and import mangoes. Most I-O models will consider apples and mangoes to be the same commodity – namely, "fruit" – and thus will both export and import that commodity. Cross-hauling of a commodity can also arise from brand loyalty, long-term contracts, etc. When cross-hauling is ignored, interregional trade is underestimated while RPCs and regional Multipliers are overestimated. Thus, the Supply/Demand Pooling method is not ideal for estimating commodity RPCs at the sub-national level. However, it is ideal for estimating RPCs at the national level. At the U.S. level, there is no domestic trade and no need to estimate the regional trade flows. We only need to know the proportion of U.S. gross demand for each commodity that is met by U.S. suppliers. We have data on U.S. foreign exports of each commodity – the remaining supply must therefore go to domestic consumption. The Supply/Demand Ratio is thus domestic supply divided by gross demand. Econometric RPC Approach Like the Supply/Demand Pooling method, the Econometric option also only estimates RPCs – i.e., it does not estimate trade flows between regions, only the proportion of local demand that is met by local producers. However, in contrast to the Supply/Demand Pooling method, the Econometric method allows for the possibility of cross-hauling. With this method, RPCs are derived by econometric equations that are estimated using the characteristics of the region. There is a different equation for each commodity with variables filled by study area data. The RPCs are limited by the Supply/Demand pooling ratio – i.e., local use of local supply cannot exceed local supply. We have attached a copy of a paper that describes in great detail the Econometric RPC approach. We hope this will provide you with additional insight into the differences between the two concepts you ask about.

Based on this, is the "average RPC" shown in the Social Accounts Explorer a Supply/Demand pooling approach or an econometric approach? If I have a Domestic supply/demand ratio of 10% and an average RPC of 5%, would it be accurate to say that 10% of my regional demand is met by domestic supply and 5% of my regional demand is met by regional/local supply, for a New York State model? Thanks.

Disregard the first question, I have found the setting in "User Preferences".

Hi Aaron. That would be correct. Either of the two measure can serve as a measure of expansion opportunity in the state. If the ratio is low,local demand for something is high relative to local supply. A low RPC would have a similar interpretation.