Assessing Economic Connectedness Degree of the Malaysian Economy: Input-Output Model Approach

Economic connectedness can be defined as the degree of internal connectedness of interdependence between the sectors of an economy. In input-output models intersectoral connectedness is a crucial feature of analysis, and there are many different methods of measuring it. These measures are believed to be important structural indicators, helpful in model estimation. Also, such measures could be analytical useful, along with the input-output models themselves, as descriptions of the nature of the modeled economies, as aids in model estimation, and perhaps as indication of the level of economic development. However, they allow for a summary description and comparative analysis of various linear flow systems. Most of the measures, however, have important drawbacks to be used as a good indicator of economic connectedness, because they were not explicitly made with this purpose in mind. In this paper, I present, discuss, compare and interpretation empirically different indexes of economic connectedness as sectoral connectedness, using a set of four empirical models for the Malaysian economy. The results suggest that mean intermediate coefficient total per sector, % intermediate transaction and % nonzero coefficients are the most generally useful interconnectedness measures for Malaysian Economy.