Some Refinements of the Semi-Input-Output Method

The semi-input-output method has been proposed by the author as a substi¬tute for what was formerly called the estimation of the indirect effects of invest¬ment projects. Essentially it rests on assumption I that a country must aim at an “ideal development process”, meaning a growth process which at no time shows unutilized production capacity. Furthermore, the method rests on assumption II that a distinction can be made between national or domestic activities (industries in the widest sense or sectors) on the one hand and international activities on the other hand. By definition the products of the former cannot, for technological or cultural reasons, be imported or exported. Examples have been given elsewhere [1]. Together with assumption I it follows from II that the productive capacity in the national sectors equals the demand for their products. With a given develop¬ment of national income the growth of the national sectors is practically deter¬mined. The choice of new sectors to be developed must mainly be made among the international sectors, where those showing the highest comparative advantages must be chosen, if with given sacrifices of scarce factors a maximum of result is wanted. The criterion for selection of sectors will depend on the aims of policy as well as on the relative scarcity of factors. Its precise content is independent of the subject to be discussed here. For simplicity’s sake we will assume that the criterion is to prefer sectors with the lowest capital-output ratio. This choice only effects the later portions of this article. The emphasis here is on something else, namely that it is not possible, if we accept assumption I, to add to the equip¬ment of the nation a factory or set of factories in one international sector only, but that simultaneously with such an “international” investment a number of complementary investments in domestic sectors are necessary, in order to keep all capacities fully utilized. We will call the necessary combination of investments a bunch; it always consists of an investment in one international sector combined with a number of investments in all national sectors.