Input -output analysis is being widely used in developing
countries for planning purposes. For a given level of final demand,
input-output analysis allows us to project the required level of gross
output to ensure consistency of plan. These projections are made on the
assumption that the existing production structure is optimal and it
implies that an increase in demand will be met through the expansion of
domestic output even when it can be satisfied through an increase in
imports. On the other hand, according to the semi-input-output method,
we do not have to increase the output of international sectors in order
to meet the increase in demand because the level and composition of
these activities should be determined by comparative- cost
considerations. These are the only national sectors in which output must
increase in order to avoid shortage. The semi-input -output method has
been such a useful and important contribution, yet, regrettably, its
influence on the planning models had been rather limited.
François Quesnay: The Circular Flow of Income and Input-Output Analysis
