Factors of Production

Definition

Factors of Production are the inputs needed for the creation of a final good or service (output).

In the context of an Input-Output Model, factors of production extend the inter-industry transactions matrix with additional rows of inputs into the economic system. These inputs might alternatively be termed Value Added (such as labour or capital) or the Payments Sector, indicating that it the additional monetary data needed to balance total inputs with Total Output in an open input-output model.

Formula

The r row vectors of factors for k regions can be summarised in an ($r \times k$) factor of production matrix F:

$\begin{align} F = \begin{bmatrix} f_{1,1} & f_{1,2} & \cdots & f_{1,k} \\ f_{2,1} & f_{2,2} & \cdots & f_{2,k} \\ \vdots & \vdots & \ddots & \vdots \\ f_{r,1} & f_{r,2} & \cdots & f_{r,k} \end{bmatrix} \end{align}$

Further Resources

• Crash Course on Input-Output Model Mathematics
• Introduction to Input-Output Models using Python