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Static input-output tables : an evaluation of their efficiency as a forecasting tool in the West Malaysian case Hodgins, Barbara Louise

Abstract

A series of six consecutive input-output tables has been constructed for the economy of West Malaysia for the period from 1960 to 1965. This thesis provides an evaluation of their efficiency when applied in forecasting intermediate output. A brief review of the theoretical structure of the static input-output model developed by Leontief has been presented. Particular attention has been given to the economic assumptions which are necessary to make the prediction procedure tenable. The basic assumption of constant input coefficients was not tested directly, however. Instead, the empirical usefulness of the input-output system has been evaluated in terms of the quality of predictions it yields. Each of the tables from 1960 to 1964 has been used in turn to predict intermediate sectoral outputs for succeeding years to 1965. Input-output prediction errors were calculated by reference to the observed intermediate outputs set forth in the tables. To test the significance of these errors, a comparison was made with the errors that arose when corresponding projections of intermediate output were made from a naive extrapolation model. In addition the overall effect on the input-output predictions of the length of the forecast period was analyzed and the relative performance of individual sectors was examined. Wherever possible, the efficiency of the West Malaysian tables was compared with that of input-output tables for the Netherlands economy. In general the predictive power of the West Malaysian tables was not impressive. On the average the input-output forecasts proved to be superior to the naive extrapolations only when the prediction period did not exceed two years. For individual sectoral forecasts, the input-output model yielded better predictions of intermediate output in only seven of the 15 sectors considered. In every comparison with the efficiency of the Netherlands tables, the inferiority of the West Malaysian tables was demonstrated. Attempts have been made in the thesis to trace the reasons for the poor performance. Some improvements to the tables have been suggested.

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