Reducing LPP Imports
I would like to reduce disposable household income by $125 million in my State of Arizona model.
In post #10844, Jenny indicated that I should do this through imported household spending patterns. I imported each household group, input the portion of the $125 million in each group as a negative change in the activity level and left the sector coefficients for the events as they were imported.
The results indicate a $90.3 million reduction in direct output and a $35 million in LPP imports, which I understand to be non-local purchases occuring outside the study region (about 28%). How can I change the model's assumption of the portion spent outside the study area, for example, if I wanted to change that 28% to reflect only 10% spent outside the area? Where do I do that in the model?
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Hi Susan, The simplest way to do this would be to just change the Activity Level proportionately. However, this will spread the increased local spending across all the sectors, which may not be realistic. If you have an idea of some of the sectors from which households can make more local purchases if they were encouraged to, or for which you anticipate there being more local supply for in the future, you could edit the LPP for those commodities in the imported Household Spending Pattern. Note: users are often surprised at the amount of imported purchases and it usually stems from the topic of margins. When a firm (or household) tells you that they bought 90% of their goods and services from local sources, this may be true but did they buy from a distributor (i.e., a wholesaler or retailer) or directly from the producer of the goods? If they bought those goods directly from the producer (very unlikely in the case of manufactured goods but fairly likely in the case of services), then 100% of the total purchase price of that good can be considered local. If, on the other hand, they bought the godds through a distributor, then only the service provided by the distributor (i.e., the margin) is local, while the producer value of the goods goes outside of the region.0
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So, if I just increase the amount of the income reduction for all household groups by X percent, then the results would show a larger direct effect as well as a larger LPP imports number, which would really indicate a larger total income reduction (ie $150 vs $125, for example); so this would not be completely accurate, but we would get the numbers (direct, total effects) that we expect to occur within the state. Is that correct? Also, thanks for the note- I will consider that and maybe the adjustment will not be warranted after all.0
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That is correct.0
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