Leontief Model

Definition

A Leontief Model is an economic model following the proposals of economist Wassily Leontief who developed a system of economic analysis (Input-Output Model) in the 1930s and 1940s.

Formula

x = Ax + y, where x is the vector of output of endogenous accounts, y the vector of final demand and A the so-called technical coefficients matrix, whose elements are the elements of the SAM divided by the total of their corresponding column. The Leontief-type multipliers matrix L = (I–A)−1 is obtained, satisfying the condition x = Ly.

In the demand-driven, upstream or Leontief model, a matrix of direct requirements A is defined as the inter-industrial flows aij from an industry i to an industry j per gross output of sector j, aij tij =xj .

An element lij of the total requirements matrix, or Leontief inverse, L (I A)1 represents the amount of gross output x (I A)1 y from sector i that was produced to satisfy a unit of final demand y from sector j.

Usage

An important goal of IO analysis is to examine the interdependencies between production and consumption within an economy. Such analysis includes the flow of goods of services between the economy and the rest of the world and can be expressed in monetary or other measurement units.

See Also

• Leontief Price Model
• Leontief Quantify Model
• Input-Output Model
• Ghosh Model