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Indirect transactions and requirements

Husna Betul Coskun

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Abstract: The indirect transactions between sectors of an economic system has been a long-standing open problem. There have been numerous attempts to define and mathematically formulate this concept in various other scientific fields in literature as well. The existing indirect effects formulations, however, cannot quantify the indirect transactions between any two sectors of an economic system. Consequently, although the direct and total requirement matrices are formulated and used for economic system analysis, the indirect requirements matrix has never been formulated before. Based on the system decomposition theory, the indirect transactions and the corresponding indirect requirements matrix are introduced in the present article for the first time. This novel concept of the indirect transactions is also compared with some existing indirect effect formulations, and the theoretical advancement brought by the proposed methodology is discussed. It is shown theoretically and through illustrative examples that the proposed indirect transactions accurately describe and quantify the indirect interactions and relationships, unlike the current indirect effects formulations. The indirect requirements matrices for the US economy using aggregated input-output tables for multiple years are also presented and briefly analyzed.

Date: 2019-11, Revised 2019-12
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Handle: RePEc:arx:papers:1911.11569