B-ll2l May 1972 cture of the Texas Economy Emplwmlr on Agriculture Texas University The Texas Agricultural Experiment Station H. O. Kunkel, Acting Director, College Station, Texas [Blank Page in Original Bulletin] Contents Summary .................................... .. 2 Introduction 3 Purpose 4 The Texas Model 4 Limitations. 5 Intersector Flow of Goods and Services 5 Gross Texas Product (GTP) l0 Intersector Relations of the Texas Economy ll Intersector Purchases 11 Intersector Sales 12 Technical Coefficients l2 Interdependence Coefficients l6 Predictive Devices 16 Output Multipliers l6 Income Multipliers 2.0 Employment Multipliers 20 Effects of Change in Final Demand on Output, Income and Employment in the Economy 21 Projections of Sector Output 22 References 23 Appendix 24 Procedures for Projection of Final Demand (FD) and Total Output to 1975 and 1980 24 Procedure for Calculating Output Requirements to Meet the Estimated Final Demand 24 Summary An input-output economic model was designed to provide public and private decision makers with empirical guidelines to assist the development and growth of the Texas economy. The model is utilized to quantify and portray the intricate flow of goods ' and services that bind sectors of the economy together and to estimate the economic impact that changes in particular sectors have on other sectors of the econ- omy. Of primary interest are interrelationships among agricultural and agribusiness sectors and other sectors of the general economy. Gross Texas Product (GTP) was estimated at $43.8 billion in 1967 or 5.52 percent of United States gross national product of $793.5 billion. This per- centage was slightly higher than Texas's share of U.S. population of 5.49 percent. The labor intensive wholesale and retail trade sector was the largest con- tributor to GTP with $6.6 billion or 15.1 percent of the total for the State. Agricultural and agricultural processing sectors are closely interrelated with other sectors of the gen- eral economy. Their impact on the economy is significant. Output, income and employment multi- pliers of these sectors were among the largest of the 3l-sector multipliers computed in this study. The meat products output multiplier of 2.82 was the largest, followed by the poultry and eggs sector and meat animals sector with multipliers of 2.46 and 2.36, respectively. These output multipliers indicate the total change in output in the economy required to meet a $1 increase in final demand for each of the given sectors. These multipliers are large, relative to those of other sectors, because of closer linkages 2 with sources of input supplies and reso =9 the State. t‘ Income and employment multipliers large for agricultural sectors. Meat produ’ and eggs and fats and oil mills sectors had i: income multipliers of all sectors. It was for example, that if the meat products sector y its sales to final demand sufficiently that y tional dollar was paid to wages, salaries v income, the total effect on the Texas econl be to raise total income by $5.29. Other and agricultural processing sectors had rela f income multipliers, as did certain f sectors. The largest manufacturing income was 3.40 in the petroleum refining sector. f? Employment multipliers were highest ' ‘ products, petroleum refining and fats and sectors of the Texas economy in 1967. of one new man-year of employment in - y’, sectors, resulting from increased output, b a significant impact on total emplo u general economy. This again reflects the; close relationship and high demand forf located within the State. j? Total production is projected to j stantially to 1975 and 1980 for each of the 3 sectors considered in this study. This p , based on an assumption of continued population and per capita income, simil nitude to those of the recent past. To output for the l0 agricultural sectors i I study is projected to increase to $4.9 bil ' and to $5.4 billion by 1980. R’ s . Lonnie L. Jones and Gholam Mustafa* ~ y, assistant professor and research associate, Depart- llAgi-icultural Economics and Rural Sociology. l cture of the Texas Economy Emphasis on Agriculture THE ECONOMY OF TEXAS is complex. Economic activ- ity within the State ranges from small, individ- ually owned and operated farms and businesses to industrial and manufacturing establishments that are among the largest in the nation. Much of the state's economy is linked closely to that in other parts of the country and in foreign countries. An under- standing of the economy's complexity and its inter- relationships is critical in designing effective economic development programs. The Texas input-output model presented in this report was developed to estimate the relationship of sales and purchases of goods and services among Texas industries and major sectors of the economy. Of specific interest was the relationship between major agricultural sectors of the economy and other agri- business and related sectors. These relationships depict the interdependent structure of the Texas economy by indicating the dependence of industries g upon one another and upon industries outside the State for markets and supplies. The study may be used to predict the effects of a change in one sector upon others in the State. By quantifying and por- traying the intricate flows of goods and services that bind sectors in the economy together, this study pro- vides public and private decision makers with empir- ical guidelines for assisting the development and future growth of the Texas economy. The chief advantage of the input-output tech- nique utilized in this study over other methods is that it provides estimates of indirect as well as direct effects of changes in the economy} For example, if a meat processing plant locates in Texas, its direct economic effects are its purchases of inputs directly from other Texas industries and its employment, wages and other payments to the local economy. The economic impact of the new plant does not stop with this initial effect, however. As local suppliers sell products to the new plant, they, in turn, must in- crease their purchases and employment. Livestock producers may have to increase their output and, in turn, hire more labor and purchase more feed and livestock. Feed producers must then purchase more ‘For a complete description of the input-output technique see Gholam Mustafa and L. L. Jones, “Regional Input-Output Model Using Location Quotients," Departmental Program and Model Documentation 71-4, Department of Agricultural Eco- nomics, Texas A8¢M University, 1971. 3 inputs in order to meet the increased sales. These are the possible indirect effects of the new plant on the State’s economy. Such indirect effects may be expected to continue until virtually all sectors of the economy are affected by the initial change. This study provides tables which trace these repercussions and show the accumulated direct and indirect de- mands placed upon suppliers in the State on a sector- by-sector basis. Purpose The primary purpose of this report is to present the results of an input-output analysis of the inter- dependent structure of the Texas economy so as to identify interaction among different sectors of the economy, giving emphasis to agriculture. The report presents estimates of the value of transactions among economic sectors, technical and interdependent co- efficients among sectors and output, income and em- ployment multipliers for individual sectors. These findings are then used to make projections of 1975 and 1980 output requirements for each sector of the economy. The specific objectives of the study were l. To develop an input-output transaction matrix for the Texas economy. 2. To estimate direct and indirect interdepend- ence among the different sectors of the economy. 3. To estimate output, income and employment multipliers for the different sectors of the economy and to make a comparative analysis of these multipliers. 4. To use the input-output model to project output requirements of each sector to 1975 and 1980. The Texas Model The interindustry model of the Texas economy presented in this report was based on secondary data? for l967—the most recent year in which data from most census and other reports were complete and available. Sector output data published specifically for the State, such as that from the Texas Crop and Livestock Reporting Service and other state agencies, were utilized wherever possible. When state data were not available, national data, primarily from census reports, were used in the model after adjust- ment to reflect Texas demographic and economic ‘An interindustry analysis based on survey data and similar to that reported herein is presently being completed by the Office of the Governor that gives more emphasis to the industrial sectors of the Texas economy. The analysis presented herein was developed independently. Secondary data were considered adequate since emphasis was given to agriculture and more secondary information is available for agricultural sectors than for the rest of the economy. Nevertheless, some differences may exist in estimated coefficients and multipliers of the two studies as a result of differences in data, analytical methods and basic assumptions. 4 “For detailed procedures of obtaining total "- conditionsfi The basic source of data for p: transactions among sectors of the Texas w» E the 1963 national input-output model‘ (6). Economic sectors may be grouped into j gories, differentiated on the basis of their; characteristics. These are the processing as endogenous) sectors and the final de == enous) sectors. Processing sectors actively the production of goods and services, and a V‘ for products of a particular processing - F tionally related to output of other process and / or final demand sectors. Included in j enous group are such sectors as dairy farm cotton, grain mill products, mining, const i wholesale and retail trade. The final demand sectors are known as ~ sectors because changes in demand for p these sectors occur autonomously and their» sions are transmitted throughout the =-_ economy. Sectors such as government, -,_ and exports to other regions are consi f‘ demand sectors. Changes in the final de . are determined by political decisions and‘ preference. Tracing the direct and indi of a change in the exogenous sectors on Q enous sectors is the primary objective of, output model. : The final payment sectors account for ments for wages, salaries, other labor w“ tor income, including profits, and pay i,‘ outside the State for goods and services; For this study, final payments were divi "-5? sectors-imports and value added. For purposes of this study, the T ,7 was disaggregated into 31 endogenous andf enous sectors. To emphasize the struct i", agriculture and the relationship between i and the rest of the economy, the sectors W 1 with as much detail as possible for production and agricultural product p u...‘ itiesfi Other sectors of the model aggregative. This study included the following A. Agricultural Product Producing Sec ~= Dairy farm products Poultry and eggs Meat animal-s and other livestock Cotton ‘ Food, feed grains and grass Fruit and tree nuts 7. Vegetables and other crops ’ A FDWrPE-“N?” reference 4, p. 155. g ‘For estimation procedure of the Texas flow table,f 8 and 5, p. l4. ‘- “For detail sector classification, see reference 4, p.» i ,i ‘I bearing crops if forest, greenhouse and nursery cts f1.- and fishery products K. Product Processing Sectors products products ing, freezing and dehydrating _i mill products i_ and oil mills iftiles, apparel and fabrics ‘cultural, forestry and fishery services _~ agricultural processing idustrial Sectors ins i truction it“ and wood products .- u ‘cals and fertilizer ‘t leum refining and related industries A u machinery _-- manufacturing sportation and warehousing services ll unications (radio, television and such) 4 utility (electric, gas and sanitary) services hi‘ olesale and retail trade i} ance, insurance and real estate er services vernment enterprises ‘lemand Sectors i gouseholds t‘ ss private capital formation p" inventory change “VCTIIIIICIII ; ports ayments pom alue added i Limitations "tations of the input-output study are "5". ily to the basic assumption of constant _ or coefficients. The assumption of » put ratios is that each industry operates ction function where all inputs vary pro- with the industry's output. This is a a on of conventional theory regarding pro- I ctions. Nonproportional inputs, changes g mix, input substitutions and technological I! constitute departures from the assumption 's study. Yet, the assumption of constant s is a first approximation to the more 3 ~ uction functions of the real world. The p the model in depicting interrelation of 7' economy depends on whether the errors I‘ involved in using this first approximation are satis- factorily small. The issue is subject to empirical verification, and previous research has shown that the assumption of constant input ratios is not unreason- able although it is only the first approximation to reality (1). The second limiting assumption is that there are no errors in the aggregation process of combining industries into sectors. This implies that industries within a sector are homogeneous and different from industries in other sectors and that each industry produces only one product. Both these major assumptions limit the interpre- tation of the results of the input-output analysis. For instance, economic multipliers are developed for rela- tively broad sectors of the economy rather than for individual industries. Hence, each sector multiplier approximates that for the industries included in that sector. The limitations do not, however, negate the usefulness of the analysis for purposes of economic policy decision making for either public planning agencies or private enterprises. Intersector Flow of Goods and Services The intersector flow table (Table 1) is the b-asis of the input-output model. It summarizes the 1967 Texas intersector transactions of goods and services (in producer prices) by sector of origin and destination, with the single exception that the intersector trans- actions do not include capital goods sales in the inter- sector portion of the table. Capital goods affecting future production capability are, however, shown sepa- rately as sales to capital formation. Each row entry represents the value of goods or services in millions of dollars sold by the producing sector to the purchasing sector represented by each column entry. For example (reading across the first row), in 1967 the dairy farm products sector sold $4.40 million worth of goods to the meat animals and other livestock products sector; $3.60 million worth of goods to the cotton sector; $7.71 million worth of goods to the food, feed grains and grass seed sector; $109 million worth of goods to the dairy products sector; and so on. The dairy farm product sector sold a total of $76.40 million of output to final demand sectors, of which $62.79 million worth of goods were sold to regions outside of Texas,“ and $13.61 million worth were sold directly to Texas households. The amount of dairy products used on farms by producers is included in the households sector. 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H50. . . fling gnaw flbmxfl “Goa . owcnnu nofinqflow “Eon “oauz .02 Each column of the endogenous sectors of Tab-le 1 depicts a sector's input structure. As an illustration, consider column 2. The poultry and eggs sector purchased $28.81 million worth of food, feed grains and grass seed; $71.33 million of Texas grain mill products; $8.03 million from fats and oil mills; and so on. In total, the poultry and eggs sector pur- chased $157.44 million of inputs from producers in the State. Poultry and egg producers also purchased $18.39 million of supplies and services from sectors outside the State as shown in the import sector row (Table l). These outlays account for $175.83 million, leav- ing $36.47 million as the portion of the output created by the poultry and egg sector itself (Table 1). This portion is called value added, and it represents what is available from the revenue of the sector for wages and salaries, interest, taxes, depreciation and returns on owner investment. The term value added is analogous with gross national product originating in each sector. Strictly speaking, value added is not the same as gross income earned by Texas residents because it includes property income on nonresident-owned investment and wages and salaries paid to the workers outside the State. The final demand sectors are types of sectors that do not purchase goods and services for resale within the State. However, some productive activities con- ducted within these sectors result in income. The value added in the household column indicates the value of the services of domestic employees. This income is shown in the value added row of the final demand columns of Table 1. The value added in the government column reflects wage and salary costs associated with government. Gross Texas Product (GTP) Gross Texas Product is the total value added by the production of goods and services within the State in 1 year. The term GTP is similar to Gross National Product (GNP) which represents the annual value of goods and services produced in the United States as a whole. Total GTP was $43.8 billion in 1967. This compares with a GNP in 1967 of $793.5 billion for the United States. Thus, Texas, which had about 5.49 percent of the nation’s population, produced about 5.52 percent of the nation's gross national product. GTP by sector of origin shows how much of the total GTP was created in each of the economic sectors of the State (Table 2). This is a useful measure of the incomes earned by the resources engaged in each activity (2). The largest value adding sector in Texas was wholesale and retail trade, contributing $6.6 billion or 15.1 percent of the total gross income of the State (Table 2). This sector includes the gross margins (operating expenses plus profits) from selling activities ‘IO TABLE 2. 1967 GROSS TEXAS PRODUCT (VAL l’ BY SECTOR OF ORIGIN GTP Pe - if No. Name (million 3) of to 28. Wholesale and retail trade 6,626.92 15.145; 29. Finance, insurance and ‘ real estate 5,513.23 12.5 4,393.21 10. 4,232.08 9.65 30. Other services 25. Other manufacturing 20. Construction 3,957.00 9.0 ’ 35. Government 3,952.82 9.0 19. Mining 3,397.60 7.7 ~ 1 23. Petroleum refining and e related industries 26. Transportation and 2,117.40 4. w.» . warehousing services 2,098.32 27. Communications and utility services 1,952.27 22. Chemicals and fertilizer 1,783.91 18. Other agricultural processing 736.44 5. Food, feed grains and grass seed 446.30 31. Government enterprises 403.27 3. Meat animals and other livestock products 372.98 4. Cotton 336.78 32. Households 274.68 21. Lumber and wood products 174.28 11. Meat products 171.90 7. Vegetables and other crops 130.71 16. Textiles, apparel and fabrics 108.11 l0. Forestry and fishery products 103.43 12. Dairy products 94.74 14. Grain mill products 82.06 15. Fats and oil mills 72.20 1. Dairy farm products 68.09 17. Agricultural, forestry and fishery services 59.16 13. Canning, freezing - and dehydrating 44.22 2. Poultry and eggs 36.47 8. Oil bearing crops 29.37 9. Farm forest, greenhouse and nursery 21,52 6. Fruit and tree nuts 21.46 24. Farm machinery 18.24 GROSS TEXAS PRODUCT 43,831.77 of wholesale and retail trade establis ~11 missions of merchandise agents and brok local sales taxes, federal excise taxes co; remitted and tips received by employees a trade function (7). 4 The trade supporting sectors, consis w portation and warehousing services; co I 07 and utility services; finance, insurance and ‘l other services; and agricultural forestry services; generated $14.01 billion or 31.98 GTP in 1967. Among the product producing sectors, manufacturing” ‘sector ranked first, f petroleum refining and related industries i" icals and fertilizer. The other manufact produced a gross income value of $4.23 9.7 percent of GTP. The petroleum ustries produced incomes of $2.12 billion cent of GTP, while the chemicals and ~ tor produced incomes of $1.78 billion or ;- of GTP. agricultural processing sectors generated i» income and accounted for 3.13 percent 3;, iurce sectors of the State, including agri- 1 eries, forestry and mining, contributed _~ to the incomes of people who work in 10.79 percent of GTP. However, these “ tors play a more important role than is ,~ the direct incomes they generate. These the suppliers to many manufacturing sec- _, output and incomes depend directly on ‘ng of basic resource materials produced by p‘ . Income multipliers (presented in a later e into consideration all such interdepend- omes. These multipliers are more appro- ures of total income generated by a given sector than is direct income. - tor Relations of the Texas Economy jor portion of the output of Texas indus- ‘ld to other Texas industries as an input INTERSECTOR PURCHASES WITHIN TEXAS‘ into their production process. This type of trans- action is referred to as intermediate since the sales are of goods and services to be used in further pro- duction. In the Texas economy, $30.6 b-illion of goods and services were sold to meet intermediate demand, and $43.8 billion of goods and services were sold to meet final demand in 1967. Intersector Purchases The percentage of total inputs that constitute intersector purchases within the State varied widely among sectors in 1967 (Table 3). The percentage of interindustry purchases ranged from as high as 97.43 percent in the case of the petroleum refining and related industries sector to a low of 32.30 percent in the case of the textiles, apparel and fabrics sector. Of the 16 sectors with the highest percentage of inputs purchased from within Texas, eight sectors were related to the agricultural products producing sectors. The relatively high dependence of agricul- tural products producing sectors on other sectors with- in the State resulted from the fact that farming was one of the earlier forms of economic development within the State and continues to be a significant seg- ment of the economy. Consequently, input supplying industries had sufficient time to develop in response Total purchase from other Texas Percent of total purchase from other sectors Texas sectors Name (million $) to total purchase Rank , um refining and related industries 5,661.09 97.43 1 v 1 enl’, flntefpfisfiS 2 s 1 336.15 93.08 3 pfoduag 899.71 4 unications and utility services 1,250.82 91.51 5 J feed grains and grass seed 377.95 90.83 6 if animals and other livestock products 989.58 90.73 7 l and eggs 157.44 89.54 8 121s and fertilizer 2,294.86 88.94 9 ' portation and warehousing services 998.55 88.41 10 - , insurance and real estate 2,266.24 88.11 11 l and tree nuts 7.99 87.71 12 J farm products 123.90 85.57 l3 p. 1,713.79 85.32 14 bles and other crops 60.33 85.08 15 l; aring crops 23.16 84.03 16 F 1e and retail trade 2,016.32 83.78 17 mill products 309.48 63.22 18‘ ‘Q services 2,798.09 77.23 19 , forest, greenhouse and nursery 5.50 75.65 20 nd oil mills 308.48 69.56 21 _'~ and fishery products 49.37 67.57 22 _-< agricultural processing 481.48 64.20 23 ' ltural, forestry and fishery services 76.92 63.71 24 ‘ ruction 6,214.79 62.29 26 products s p 220.04 57.19 26 _‘_‘.r r and wood products 144.05 55.73 27 'ng, freezing and dehydrating 69.28 54.88 28 manufacturing 3,370.36 54.87 29 _‘ machinery 15.26 49.45 30 74.84 32.30 31 "Ilcs, apparel and fabrics .oQ . ~m 5w . c. mvcmc. was... wfic... wmcwc. 2&3. mwcwc. 5N5. mvmcc. cmmwc. $258 35D .cm .28. cmc5. 5m 5. 8E... 2... 5. 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E5 .2 2.8.. 8.... .8... .8... .8... 85.. 3.2.8.. .82 .2 8.... 5...... 8.... 5.8. 2.882 .2 8.... 8.... .5... 88.. .88. 8E2 .5 .8... .8... 5.... 88. =0 .. 8.... .5... 8.... 8.... .5... .8... 8.2508.» .... 8.... 8.... 2E... .. 8N8. .5... .2... 8.... .296 5 258. .2... 8.... .250 .5 2.... 28.. .8... 8.... 2.8.5. .85 .5 .8... .8... 8.... 2.5.2 a 25.. E5 .. 5022.20.20 500820» 0022mm 032M. 5008.20. 80.50. 8.5.2.. 202E022 M2250» 28220.6 202554 .0552 oZ 2.05 .050 .2038 205820.» -552: 22mm 5:20.30.“ -6950 -5350“. écauh. 205C 5 .. 8 8 8 8 8 8 8 8 5 2...; A v.0... I .. i .7. w. ._ ‘l5 Changes in the manufacturing sectors exert a large effect on the mining, services and trades sectors. Interdependence Coefficients The technical coefficients in Table 5 represent only the direct or first-round effects. The inter- dependence coefficients (Table 6) reflect direct as well as indirect effects on the endogenous sectors of a change originating in the final demand sectors. Returning to the example of meat products, it is indicated in Table 5 that each additional dollar increase in final demand of the meat products sector directly required 8 cents output from the poultry and eggs sector and 52 cents worth of meat animals and other livestock products. If these sectors increase output by 8 and 52 cents in response to a l-dollar increase in demand for processed meat products, they, in turn, must make additional purchases of materials and services. This is second-round, indirect effect which gives rise to a third-round, indirect effect. In this way, the indirect effects continue as in chain reaction until, ultimately, the effect of the initial change in final demand reaches almost every other industry within the State. The interdependence coefficients presented in Table 6 represent the total direct and indirect effects on each sector resulting from a l-dollar change in final demand for products of a particular sector. For example, the column for the meat products sector (sector ll) shows that in order to provide final con- sumers with an additional $1 million of meat products, a total output of $1,106,013 ($1,000,000 X 1.106013) of goods and services would ultimately be required from the meat products sector itself;7 $805,366 ($1,000,000 X .805366) of goods and services from the meat animals and other livestock products sector; $226,074 ($1,000,000 >< .226074) of goods from the food, feed grains and grass seed sector; and so on (Table 6). The increase in output by the food, feed grains and grass seed sector in this case is an illustration of the indirect effects incorporated in the interdepend- ence coefficients. Little of this output would be sold directly to the meat products sector to meet its increased output. Rather, the increase would be required for indirect sales made to the meat animals and other livestock products sector which would be required to increase its sales to’ the meat products sector. Similar indirect transactions are included in each of the interdependence coefficients. The interdependence coefficients table is useful in examining and predicting the total impact of changes and adjustments in certain sectors of the economy on other sectors. Numerous changes, such ‘Of this $1,106,013, $1 million of output would have been sold to final consumers and $106,013 would have gone to inter- mediate demand. This latter increase in sales is the result of indirect effect on the meat products sector as other endogenous sectors increase their output in response to the initial change. l6 as that posed for the meat products sector, i considered for any other sector presented in A The total output effects of locating a new increasing or decreasing exports and/or i’ government spending may be predicted by “ coefficients. a Predictive Devices The analysis of the interdependent st _i the Texas economy summarized in Table 6 1' the basis for developing empirical devices be used to predict the effects of planned or. changes in some sector of the economy on ~' put, income and employment in the Stat g devices are commonly referred to as sect‘ output multipliers, and they indicate the a change in output, income or emplo n particular sector will have on the rest of the i Output Multipliers The sum of a column of interdepen w; cients in Table 6 indicates the total direct . requirements for output of products of within the Texas economy generated by h»; of $1 to final demand by a sector. I7 commonly referred to as the sector output t For example, the sum of the vertical colujf dairy farm sector (column 1, Table 6) is means that a $1 change in final demand of the dairy farm sector will cause a chané output in the economy of $2.04. Of this over $1 is produced by dairy farms, 36 increased output by the grains sector ~- from grain mills (Table 6). Outputs by i‘ account for most of the multiplier. Output multipliers for each of the? v identified in this study, ranked by ".3"! presented in Table 7. Meat products, - eggs, meat animals and other livestock p HY“ mills products, fats and oil mills and? refining have the highest output multip 8). These multipliers are large, relative q other sectors, because of closer linkages _ i of input supplies and resources within?- Each imports a relatively small share off The meat products sector, for examp 1-)‘. directly and heavily upon livestock and - i ducers in the State for supplies of slaugh‘ These producers, in turn, demand rela quantities of locally produced feed productive inputs purchased from t pliers and other sectors of the general eco‘ close interrelationship means that an -_' decrease in demand for products of these f have a relatively large cumulative eff economy as a whole. The primary dam -, ences on sector multipliers are the pa ~\_ outside the State for imports of goods and other payments to the final pay .m wan v wcwum o8 mug. “Scum 22.558 5cm- ENS. mmmaa. w$8. mamaa. mmmaa. zwmcc. mamaa. am maa. m maaa. aamaa. “Sifiuccu caufifificw . 5 m Emma. mmmva. mmmaa. cfimc. was... ammma. wfimo. Esq mwbma. m; >8. 33>?» .550 .am mmm S. vmmma. m 5 2:. 8R... 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EEG A mvmmumhzdo wuuvfivm vucncwm ocwfifi wuumiow mouwfiow mafia iuisumfi wficfiou 2x3 uonazq ~05 Z dZ 23E .850 wcoflau i035 bflzcma gum Ezflobum .5030 -Eu>oO $355500 Lommcwuh. .350 3 cm ww hw cw mw vw cw ww a Aufiiuaouc a uqmfln l9 TABLE 7. TOTAL DOLLAR CHANGE IN OUTPUT PER ONE-DOLLAR DIRECT CHANGE IN FINAL DEMAND BY SECTORS OF THE TEXAS ECONOMY, 1967 Output No. Name multipliers Rank 11. Meat products 2.82 1 2. Poultry and eggs 2.46 2 3 Meat animals and other livestock products 2.36 3 15. Fats and oil mills 2.26 5 14. Grain mill products 2.23 4 23. Petroleum refining and related industries 2.12 6 l. Dairy farm products 2.04 7 22. Chemicals and fertilizer 1.94 8 12. Dairy products 1.85 9 4. Cotton 1.83 l0 17. Agricultural, forestry and fishery services 1.78 11 5. Food, feed grains and grass seed 1.77 12 8. Oil bearing crops 1.75 13 31. Government enterprises 1.66 l4 13. Canning, freezing and dehydrating 1.64 15 27. Communications and utility services 1.59 16 20. Construction 1.54 17 30. Other services 1.54 17 18. Other agricultural processing 1.53 18 7. Vegetables and other crops 1.53 18 21. Lumber and wood products 1.51 19 10. Forestry and fishery products 1.50 20 25. Other manufacturing 1.50 2O 26. Transportation and warehousing services 1.49 21 19. Mining 1.48 22 24. Farm machinery 1.47 23 6. Fruit and tree nuts 1.45 24 29. Finance, insurance and real estate 1.43 25 16. Textiles, apparel and fabrics 1.37 26 28. Wholesale and retail trade 1.35 27 9. Farm forest, greenhouse and nursery 1.34 28 Income Multipliers Income multipliers measure the change. in total income in the economy that results from a $1 change in income in a particular sector. The concept of the income multiplier is that an increase in final demand for products of a sector leads to a cumulative increase in income in the economy as higher output (both direct and indirect) generates increased pay- ments in the form of wages, salaries and other income forms. This cumulative or total income change divided by the direct income change in the sector in which final demand initially increases, yields an estimate of the sector income multiplier. The income multiplier was largest in the meat products sector at 5.29, followed by the poultry and egg sector at 4.36, fats and o-il mills sector at 4.20 and the grain mills products sector at 4.07 (Table 8). An increase in income in any of these sectors would have a relatively large effect on income throughout the State. The relative magnitudes of the income multi- pliers in Table 8 reflect differences in the linkages among sectors, use of local resources and the amounts 2O paid as income out of total output of rf sectors. " Employment Multipliers .. The employment multiplier measures change in man-years of employment in the Q resulting from a direct change of one man- the labor force in a particular sector. The L of an employment multiplierf is that the req for labor change in a number of sectors f‘ change in output and employment of an in sector. As in the income multiplier, the c u, employment change that occurs in all sectors is‘ by the direct employment change to obtain- ployment multiplier. 3 Employment multipliers for each of ‘ endogenous sectors are ranked and presented 9. As expected, employment multipliers are _ in those capital intensive sectors that depend on labor intensive sectors for inputs, such l cultural processing. This results because ~§_ employment effect of the capital intensive L relatively small, and a relatively large int output is required for an additional man- v» TABLE s. TOTAL DOLLAR CHANGE IN INCO ONE-DOLLAR DIRECT CHANGE IN INCOME BY - OF THE TEXAS ECONOMY, 1967 ~ Income No_ Name multipliers ll. Meat products 529 2. Poultry and eggs 4-35 15. Fats and oil mills 420 14. Grain mill products 4-07 23. Petroleum refining and related industries 3-40 3. Meat animals and other livestock products 3.25 12. Dairy products 2.76 1. Dairy farm products 2.56 13. Canning, freezing and dehydrating 2.26 22. Chemicals and fertilizer 2.09 17. Agricultural, forestry and fishery services 2.08 4. Cotton 1.33 5. Food, feed grains and grass seed 1.73 8. Oil bearing crops 1.67 20. Construction 1.66 21. Lumber and wood products 1.65 31. Government enterprises 1.64 24. Farm machinery 1.63 25. Other manufacturing 1.61 16. Textiles, apparel and fabrics 1.58 27. Communications and utility services 1.57 30. Other services 1.54 18. Other agricultural products 1.53 19. Mining 1.44 26. Transportation and warehousing services 1.42 10. Forestry and fishery products 1.39 7. Vegetables and other crops 1.39 29. Finance, insurance and real estate 1.35 6. Fruit and tree nuts 1.30 28. Wholesale and retail trade 127 9. Farm forest, greenhouse and nursery 1:22 i: AL CHANGE IN MAN-YEARS OF EMPLOY- NE MAN-YEAR 111111501“ CHANGE IN EM- Y SECTORS or THE TEXAS ECONOMY, Employment multipliers Rank _|' 8.57 l i" refining and _ ries 7.67 2 _ mills 7.19 3 ~ tural products 6.48 4 3i products 4.94 5 fishery products 3.95 6 '_ - . 3.77 7 ind fertilizer 3.20 8 lb‘ eggs 2.57 9 w and other g 1 U018 2.37 l0 tions and utility services 1.99 11 "+- 1.98 12 1». rance and real estate 1.84 13 ~- products 1.80 14 '9 1.79 15 l] w , forestry , services 1.70 1s tion and A»; services 1.55 17 Y 1.54 1s freezing and dehydrating 1.52 19 j ufacturing 1.52 19 Q - » inery 1 .45 20 1.40 21 -- - wood products 1.35 22 grains and grass seed 1.27 23 i»; crops 1.27 23 i ~» enterprises 1.22 24 f ~- and other crops 1.16 25 V" and retail trade 1.16 25 rv- tree nuts 1.11 26 i apparel and fabrics 1.09 27 ‘,9 -~ , greenhouse and nursery 1.08 28 _.-~ labor force of such a sector. Hence, ployment effect per man-year increase in _yment is relatively large. i erlying assumption in computing employ- pliers is that a direct linear relationship j ‘i employment and output. Another iI-ssumption is that the multipliers do not _ possible under-employed resources and g'ty. Neither of these assumptions holds of sectors, and in these cases, the magni- 7estimated multipliers may be exaggerated. . t0 be a problem particularly in the 1 sive sectors such as meat products process- Q oil mills, other agricultural products .- d the petroleum refining sectors. Hence, y‘ should be exercised in the interpretation , employment multipliers in those sectors. ~\ the indicated relative magnitude (rank) ’ tipliers appears accurate, and it is logical that the impact on the state's employment _* in employment in these sectors is rela- g The magnitude of employment multi- the more labor intensive sectors, such as wholesale and retail trade and the various services sectors, is consistent with expectations. Effects of Change in Final Demand on Output, Income and Employment in the Economy The selection of economic sectors for further development may be made on the basis of which sector has the greatest direct and indirect impact on output, income or employment in the State for a given increase in final demand for its products. To illustrate this, the effect of a fill-million change in final demand, such as increased exports by a par- ticular sector, on output, income and employment in the Texas economy is presented in Table 10. The TABLE l0. EFFECTS OF $1-MILLION CHANGE IN FINAL DEMAND ON OUTPUT, INCOME AND EMPLOYMENT FOR EACH SECTOR OF THE TEXAS ECONOMY, 1967 Total Total Total change change change in in output in income employment No. Name (million 8) (million 8) (man-years) 1. Dairy farm products 2.04 .820 151.80 2. Poultry and eggs 2.46 .749 116.67 3. Meat animals and other livestock products 2.36 .829 156.44 4. Cotton 1.83 .883 106.02 5. Food, feed grains and grass seed 1.77 .895 150.97 6. Fruit and tree nuts 1.45 .917 205.80 7. Vegetables and other crops 1.53 .903 174.03 8. Oil bearing crops 1.75 .862 172.73 9. Farm forest, green- house and nursery 1.32 .912 213.24 10. Forestry and fishery products 1.50 .815 37.65 11. Meat products 2.82 .792 122.04 12. Dairy products 1.85 .546 67.95 13. Canning, freezing and dehydrating 1.66 .585 91.10 14. Grain mill products 2.25 .736 82.02 15. Fats and oil mills 2.18 .588 61.08 16. Textiles, apparel and fabrics 1.37 .504 199.85 17. Agricultural, forestry and fishery services 1.78 .684 116.92 18. Other agricultural processing 1.53 .756 26.66 19. Mining 1.48 .907 33.77 20. Construction 1.54 .718 48.45 21. Lumber and wood products 1.51 .665 83.38 22. Chemicals and fertilizer 1.94 .856 37.64 23. Petroleum refining and related industries 2.12 .908 32.44 24. Farm machinery 1.47 .604 62.78 25. Other manufacturing 1.50 .656 56.12 26. Transportation and warehousing services 1.49 .921 54.30 27. Communications and utility services 1.59 .924 53.16 28. Wholesale and retail trade 1.35 .929 99.62 29. Finance, insurance and real estate 1.43 .921 37.69 30. Other services 1.54 .846 77.30 31. Government enterprises 1.66 .909 144.30 21 meat products‘ sector had the greatest stimulating potential in terms of total output in the economy. A $1-million increase in meat processing final demand would result in an estimated $2.82 million of total output in the economy. The wholesale and retail trade and the com- munications and utility services sectors had the highest potential of all the sectors to increase income as a result of an initial increase in final demand. If the output in the wholesale and retail trade sector was expanded by $1 million, then wages, salaries and other income in the economy would increase by $929,000 ($1,000,000 X .929). The comparable figure for communications and utility services was $924,000 ($1,000,000 X.924) (Table 10). These sectors are labor intensive, and a relatively high percentage of their total output is paid out as household and busi- ness income. Development of the wholesale and retail trade sector is, of course, largely dependent upon further development of basic resource and manu- tions involve two steps. These are 1) esti 1 facturing sectors. greenhouse and nursery sector. The creation of jobs would be greatest (213 per million dollars of final demand) by the farm forest, This sector, in com- parison with all others, had the highest potential for TABLE ll. MILLIONS OF DOLLARS)‘ ESTIMATED FINAL DEMAND AND PROJECTED OUTPUT FOR 197s AND 1980, TEXAS ECO increasing employment with fairly large to 1 i‘ and relatively low total output effects. The ,6 of jobs created per million dollars of final __ was relatively large in most of the agricult (Table l0). The initiation of economic development that maximize the total effects on output, in employment in the state's economy would bean appropriate development goal. The shown in Tab-le l0 provide a comparative . , the economy in this respect and may be u w, junction with other planning factors to se; sectors that should receive emphasis in achi . goal. ~ Projections of Sector Output The input-output model may be jecting the future output of each sector. Su final demands on all sectors for the proj; and 2) estimating the total production req T, sectors to meet both final demands and f mediate demands from other sectors. output model developed in this study project sector outputs for 1975 and 1980 ( . Estimated Projected Estimated Pr - i final demand, output, final demand, ' No. Name 1975 1975 1980 1. Dairy farm products 84.52 269.26 85.55 2. Poultry and eggs 110.80 262.25 123.07 3. Meat animals and other livestock products 397.93 1,859.60 465.56 4. Cotton 633.35 779.46 679.98 5. Food, feed grains and grass seed 271.03 1,101.55 312.36 6. Fruit and tree nuts 32.23 36.55 35.65 7. Vegetables and other crops 162.49 246.64 178.64 8. Oil bearing crops 9.92 75.00 10.96 9. Farm forest, greenhouse and nursery 20.45 39.23 24.03 10. Forestry and fishery products 179.12 237.27 219.98 ' l1. Meat products 1,188.60 1,472.88 1,226.88 h 12. Dairy products 553.70 658.55 570.15 " _ 13. Canning, freezing and dehydrating 223.32 233.60 262.42 14. Grain mill products 189.69 599.01 222.89 ‘a 15. Fats and oil mills 327.67 695.43 384.83 : i 16. Textiles, apparel and fabrics 359.87 373.16 392.47 . 17. Agricultural, forestry and fishery services 27.95 218.56 32.77 l 18. Other agricultural processing 1,754.37 2,036.44 2,062.06 2 _ 19. Mining ' 1,349.04 7,272.00 1,581.54 s’ 20_ Construction 21. Lumber and wood products 227.87 590.29 267.76 » 22. Chemicals and fertilizer 2,917.29 5,867.80 3,421.99 6 l_ 23. Petroleum refining and related industries 8,720.50 10,656.30 10,235.28 12, I 24. Farm machinery 64.12 67.18 75.35 25. Other manufacturing 8,680.13 14,182.73 10,199.63 A 16 ,1 26, Transportation and warehousing services 1,640.14 4,372.38 1,925.88 5 i; 27. Communications and utility services 1,888.69 4,522.85 2,219.31 5 28. Wholesale and retail trade 9,168.14 12,322.55 10,771.33 14,, 29. Finance, insurance and real estate 6,571.76 11,007.94 7,722.18 12 3()_ Other Sefvices 6,491.46 10,930.57 7,626.62 12 31. Government enterprises 163.26 990.39 191.84 1, a ‘The final demand and total output of each sector for the year 1967 are indicated in the intersector flow table (Table. 22 v’ w- d of each sector was estimated for on the assumption that Texas exports 7- services are determined by economic here in the United States while other “i such as Texas household consumption, M by economic activity within Texas. estimates for 1975 and 1980 are pre- le ll. Detailed procedures for develop- 'mates are shown in Appendix. These i- projections were then utilized in con- a the interdependence matrix to estimate Q required in each sector to meet these m demands (see Appendix). Conse- " projections include total sector outputs i,“ ~ t both projected final demand and demand for the years 1975 and 1980. 'ons are based on the assumption of fixed icients within economic sectors. Over and innovations may alter these therefore, input-output projections are for shorter time spans. ~ ~jected production increases substantially ; 9,1980 for each of the 31 economic sectors V iTotal value of production for the l0 sectors identified for study is projected I $4.9 billion by 1975 and t0 $5.4 billion he projections indicate the quantity of output required to meet both the demands of final consumers and the intermediate demand of other sectors of the Texas economy. References 1. Chenery, Hollis B. and Paul G. Clark, Interindustry Eco- nomics, New York, john Wiley, 1959. 2. Isard, W., “Regional Commodity Balances and Interregional Commodity Flows," Am. Econ. Rev, XLIII:167—l80, May 1953. 3. Martin, William E. and Harold O. Carter, A California Interindustry Analysis Emphasizing Agriculture (Part I), Gianinni Foundation Res. Rep. 278, February 1968. 4. Mustafa, Gholam, “An. Input-Output Model for the Texas Economy with Emphasis on Agriculture," unpublished PhD dissertation, Texas ABcM University, May 1971. 5. Mustafa, Gholam and L. L. Jones, Regional Input-Output Model Using Location Quotients, Program and Model Docu- mentation 71-4, Department of Agricultural Economics, Tex- as A8cM University, June 1971. 6. U.S. Department of Commerce, Input-Output Structure of the U.S. Economy: 1963. 7. U.S. Department of Commerce, Office of the Business Eco- nomics Division, The 1958 Interindustry Relations Study, November 1964. 8. Schaeffer, William A. and Kong Chu, “Non-survey Tech- niques for Constructing Regional Interindustry Models,” The Regional Science Association Papers 23:83—l91, November 1968. 23 Appendix Procedures for Projection of Final Demand (FD) and Total Output to 1975 and 1980 Procedure 1 a) The projection of per capita consumption for 1980 is available in Agricultural Economics Re- search, January 1966, Vol. XVIII, No. 1. By linear interpolation the per capita consumption in 1967 and 1975 was derived. An index was derived for 1975 and 1980 taking 1967 as base year. Let these indices be k1 and k2. b) A population index was estimated for the United States and Texas separately for the years 1975 and 1980, with 1967 as base year. Let In, = U.S. index for 1975 Iu2 = U.S. index for 1980 In = Texas index for 1975 I22 = Texas index for 1980 c) Now let e = 1967 Texas export of a particular SCCIOI‘ f = 1967 Texas FD (except export) of a particular sector Then 1975 projection of total FD of a particular S€Ct0r Z klltlf + kllulfi and 1980 projection of total FD of a particular sector = k2lt2f + k2Iu2e The FD of the sectors 1 to 8, ll, 12, 15 and 16 were estimated using this procedure. Procedure 2 24 a) The personal consumption patterns were avail- able (in billions of dollars) in Statistical Ab- stracts of the United States (p. 314) for the years 1950, 1955, 1960, 1965, 1966, 1967 and 1968. From each year, data on the consumption of food, beverages and tobacco were subtracted because these are covered in Procedure 1. Let these data be Y,(t = 1950, 1955 . . . . . 1968) b) Develop an index by taking Yum as base. Let these indices be y, Y: = Yt/ Y1967 (Note that yum = 1) c) Fit a regression equation y, = a + blxl + b2x2 time period (1950 = 0, 1955 = 5, and so forth) x2 = 0 or 1 (dummy variab-le) x2 is 0 for 1950 and 1955 and 1 elsewhere (The reason is that prior to 1960 Alaska and Hawaii are excluded) where x1 = d) From the regression line of (c), project’, V1980 ' In our model V1975 = 1-371 _ ymso = 1.611 ’ e) Year R R1/R1967 1967 18.25 1.000 1975 17.85 .978 1980 17.81 .976 U.S. population Texas population R indicates that in comparison withli U.S. population in 1975 and 1980i declined (with respect to Texas). p‘ the export will also be relatively "-2 and 1980. So, a correction is included such tha yew-m = 1.371 >< .978 = 1.341 $761980 2 X =- f) Let e = 1967 Texas export of a parti f = 1967 Texas FD (except export ticular sector j_ in Then, 1975 projection of total FD i ticular sector = 1371f + 1.34112; ‘_ tion of total FD of a particular sector‘ + 1.572e. The FD of the sectors 9, 10, 1s, 14 . were estimated using this procedure. Procedure for Calculating Output Req to Meet the Estimated Final lw» 1 The basic equation of the input-on is x = (I-—A)-1 Y a where X is a matrix of sector total outputs, § (I—A)-1 is the interdependence coeffici i’ and Y is a matrix of sector final demands. . 0 i." If the projected final demand ma p‘ and /or 1980 is 1?, then the future output matrix (i) may be obtained by the eq (I—A)"1 This matrix (i) contains M. g’.- output of each sector required to meet - --; final demand (i?) for the projection year. cedure was conducted for each of the proj 1975 and 1980. Estimated final demand s output for each sector are presented in T [Blank Page in Griginal Bulletin] n ‘ -" v The Texas Agricultural Experiment Station Tam 4&1“ Univmi‘! roams: mo - College Station, Texas 77843 U.S.DEPAR : g1 u. o. lama, Am»; Director-Publication “Gmcm” <1 4 \ l. 1 a {‘ 7 1 I \ \