CONSTRUCTION OF MULTI-REGIONAL INPUT–OUTPUT TABLES USING THE CHARM METHOD

Abstract

Subnational multi-regional input–output tables (IOT) are important tools for studying interregional socio-economic and/or environmental interrelations that help to address a wide range of current societal, ecological and economic challenges. However, the lack of subnational input–output data is a major obstacle which leads to a wide use of non-survey methods. Like other non-survey methods, the cross-hauling adjusted regionalization method (CHARM) was originally developed for the construction of single-regional IOT. In this paper, we extend CHARM to the case of bi- and multi-regional IOT. We find that the original CHARM formula has two limitations that are also of great importance for the single-regional case: First, cross-hauling in interregional trade is implicitly set to zero and, second, accounting balances may be violated owing to structural differences between the regional and national economies. We present a modified formula addressing these issues and examine its performance in terms of a case study.

Keywords:

• Multi-regional input–output
• Non-survey methods
• Cross-hauling
• Interregional trade
• Baden-Württemberg

Acknowledgements

The authors would like to thank Jan Oosterhaven, Manfred Lenzen, Tony Flegg and Wilhelm Kuckshinrichs for fruitful discussions and valuable suggestions on earlier drafts of this paper. Our thanks also go to two anonymous referees for their very useful comments that helped to improve the quality of our paper substantially.

Notes

¹The consequences of ignoring cross-hauling are identified by Jackson (1998, p. 235) as follows: “neglecting cross-hauling [ … ] will result in overestimates of regional supply and correspondingly inflated output multipliers”.

²The difference between ‘type B’ and ‘type E’ tables lies in their treatment of imports. ‘Type B’ tables depict the intermediate and final demand for products from domestic production, whereas ‘type E’ tables depict total intermediate and final demand (domestic production and imports). For more details, see Kronenberg (2012).

³In our experience, regional scientists often prefer type B tables because they are mainly interested in regional output and employment, while ecological economists often prefer type E tables for studies of environmental impacts.

⁴The application of CHARM to supply–use tables is straightforward. In Table 1, total domestic product output from the supply table would be used instead of $x_i^r$, while$z_i^r$ and $d_i^r$ would be replaced by total intermediate and final use of products from the use table.

⁵See Leigh (1970), Isserman (1980), Norcliffe (1983) and Harris and Liu (1998) for studies of cross-hauling at the subnational level.

⁶Note that as $b_i\equiv e_i-m_i\equiv x_i-z_{i\cdot }-d_i$ implies $x_i-e_i=z_{i\cdot }+d_i-m_i$, both $x_i^r<e_i^r$ and $z_{i\cdot }^r+d_i^r<m_i^r$ must occur simultaneously.