Regional planning and policy analysis in Australia through integrated economic modelling

Several attempts have been proposed in the literature to relax the restrictive assumptions of a standalone input-output model. Particularly, endogenisation of the household sector, which exhibits the highest constant returns to scale, has been continuously recognised as a key objective of such attempts. This objective increases in importance as we move from national to regional economies. Most of the studies in the literature collapse the intermediate demand information into a solo composite variable. The intermediate demand information serves as a priori data, which represents the inter-sectoral1 relationships within a regional economy. In this paper, estimation of sectoral employment by embedding a priori information into a host econometric model is discussed. In the first section, an input-output model is presented that allows for detailed and extensive data on inter-sectoral structure of the Illawarra economy. In the second section it is shown that use of a holistic embedded methodology in estimating dynamic and intensive labour changes in such a model relaxes some of the restrictive assumptions of the traditional input-output model and provides higher accuracy.