Regional input-output models and the treatment of imports in the European System of Accounts (ESA)

Input-output models are useful tools for regional science owing to their ability to capture many of the distinguishing features of a regional economy. Since input-output tables are hard to find at the regional level, many researchers adopt nonsurvey techniques to derive regional input-output tables (RIOTs). Numerous methods have been suggested and this has spawned a stream of literature comparing the relative performance of these methods. The present paper contributes to that literature by examining a largely neglected problem of nonsurvey techniques: the allocation of imports. In the European System of Accounts (ESA), there are two ways of allocating imports: inside the interindustry transactions matrix or outside. In the former case, they are allocated as imports in the sector that produces similar goods (indirect allocation). In the latter case, imported products are allocated to the sector that uses them (direct allocation). This paper shows that the choice of a nonsurvey method should depend on the way in which imports are allocated. If the nonsurvey method is not properly chosen, the results of the procedure may be misleading and implausible. The paper concludes that LQ methods are better suited for regionalising input-output tables with directly allocated imports, whereas commodity-balance methods like CHARM are better suited for regionalising input-output tables with indirectly allocated imports.