Multipliers and Linkages
MODEL LAB · LABORATORY 05
Multipliers
& Linkages.
Measure how strongly final demand propagates through production chains. Translate total output requirements into income and employment effects, then identify the sectors occupying strategic positions in the economic network.
FROM OUTPUT TO IMPACT
One shock.
Several measures.
A multiplier is a ratio between a total system response and the initial exogenous change. Its meaning depends entirely on the numerator, denominator and model closure.
mˣⱼ = Σᵢlᵢⱼ
Output multiplier
Total gross output generated across all sectors by one additional unit of final demand for sector j.
mʸⱼ = v̂L
Income multiplier
Labour income or value added generated after applying sector-specific income coefficients to total output.
mᵉⱼ = êL
Employment multiplier
Jobs supported by total production when output requirements are weighted by employment intensities.
STRUCTURAL POSITION
Who pulls?
Who supplies?
Backward linkage
BLⱼ = Σᵢlᵢⱼ
A strong backward linkage means that additional final demand for sector j activates a comparatively large volume of upstream production.
Forward linkage
FLᵢ = Σⱼgᵢⱼ
A strong forward linkage indicates that sector i supplies inputs broadly throughout the economy. Formal supply-driven analysis uses the Ghosh inverse and requires cautious interpretation.
SECTOR IMPACT LABORATORY
Compare the
propagation power.
Select a target sector and shock. Change its structural and socioeconomic coefficients to see why multiplier rankings depend on the outcome being measured.
POLICY READINGManufacturing has the strongest backward linkage in this comparison: its demand shock pulls intensively on upstream suppliers. The employment result still depends on the chosen jobs coefficient.
RESPONSIBLE INTERPRETATION
Multiplier size is not
a policy verdict.
Define the denominator
State whether the multiplier is per unit of final demand, output, income, expenditure or employment.
Respect capacity
Fixed-price multipliers may overstate effects when labour, capital or supply chains are constrained.
Report leakage
Imports and interregional purchases redirect part of the production response outside the study area.
Separate efficiency and equity
The strongest production linkage need not deliver the fairest distribution or greatest social value.
SCIENTIFIC CHECKPOINT
What does a strong
backward linkage mean?
Which statement is most defensible?
Distinguish demand-pull connectivity from welfare and forward linkage.
Continue to Laboratory 6: Regions in an Interdependent Economy →
