Regionalising input-output tables: Comparison of four location quotient methods

Abstract

In this chapter we compare four methods to generate a regional input-output table (RIOT). A RIOT is a requirement for a regional input-output (IO) analysis and any over- or underestimation of regional input-output coefficients (RIOCs), contained in the RIOT, can lead to over- or underestimation of economic impacts. One category of methods that can be used to generate a RIOT is based on location quotients (LQs). When the choice is made to apply an LQ method, the researcher must decide which one to use, as several alternatives are available. In this chapter we establish a ranking in size of RIOCs, generated by the four most used LQ methods (Simple Location Quotient, Cross Industry Location Quotient, Round’s Location Quotient, and Flegg’s Location Quotient). This ranking shows if, for any combination of demanding and supplying sectors, the use of a different LQ method would lead to smaller or larger RIOCs. We also derive a ranking in size of total output multipliers. We conclude that this ranking is not necessarily the same as the ranking in size of RIOCs. Although our analysis is relevant for any regional economic impact analysis, the relevance for tourism is especially prevalent as IO analysis is commonly used in this domain, for reasons of data availability, comparability, and simplicity.