Evaluation of regional economy through an embedded econometric-interindustry model

Since incorporating interindustry analysis into econometric framework was pioneered some 40 years ago (Glickman, 1977), there has been a growing number of studies in the literature on application of the integrated framework at the subnational level. The integrated models in the literature have appeared in different forms with respect to the strategy and the structure, through which input-output (IO) and econometric are merged. The objective of the integrated framework is to capitalize on the merits of both component models, namely, an exhaustive interindustry analysis and a dynamic reflection of economic variables. This paper presents an attempt to extend and apply the interindustry demand variable (IDV) technique to embed an IO analysis into a time-series model to investigate the Illawarra economy. The result is a dynamic intersectoral model that not only represents structural changes in the regional economy, but also provides high accuracy, in forecasting total employment and output.