INJECTION LEAKAGES, TRADE REPERCUSSIONS AND THE REGIONAL INCOME MULTIPLIER: AN EXTENSION
| Date | 01 August 1983 |
| Published date | 01 August 1983 |
| Author | Charles M. S. Sutcliffe,M. Thea Sinclair |
| DOI | http://doi.org/10.1111/j.1467-9485.1983.tb01019.x |
Scofrrrh
Journalof
F‘olifical
Economy,
Vol.
30.
No.
3.
Novcrnbcr
1983
Q
1983
Scottish
Economic
Socicty
INJECTION LEAKAGES, TRADE
REPERCUSSIONS AND THE REGIONAL
INCOME MULTIPLIER: AN EXTENSION
M.
THEA SINCLAIR
AND
CHARLES
M.
S.
SUTCLIFFE
University
of
Kent and University
of
Reading
I
INTRODUCTION
Despite the notable volume of literature which relates to the Keynesian
income multiplier, confusion concerning the theory and application of the
methodology still remains. The purpose of this paper is to clarify some relevant
issues raised in a useful paper by Black
(SJPE,
1981),
who identified types of
feedback ignored by previous authors. The first issue which will be discussed in
this paper is the definition of the multiplicand. Black’s multiplicand will be
shown
to
be inappropriate since
it
consists of both a one shot and a continuing
injection, with the result that the multiplier values relate to both a temporary
and a permanent change in income. It will be argued that one shot and
continuing injections should be considered as separate multiplicands, as
should induced investment which is not a continuous function of income. The
discussion of this issue and some subsequent issues refers to “sub-national
areas”, illustrating that the analysis is not restricted to the regional level.
However the analysis could,
if
desired,
be
carried out using regional
terminology.
The importance of providing an explicit definition of the form of income
which is being measured will
be
considered next. It will be argued that the first
round propensities which should
be
taken into account in the multiplier
formula depend upon the definition
of
income which is measured and the form
of the initial injection into the area. Unless the definition
of
income is provided,
it
is impossible to identify the first round propensities which should be
included in the multiplier equation, and hence the multiplier equation which is
used may be inappropriate.
The main issue which will be examined in this extension to Black‘s
contribution is the definition and measurement
of
the different types of
feedback which occur when the simple multiplier formula is expanded to
incorporate inter-area trade repercussions. Black pointed out that most
authors in the field have failed to estimate the feedback generated by the
leakage from the initial injection and from induced investment. He termed this
feedback the
LIR
(leakage induced repercussion) effect. Black produced results
Date
of
receipt
of
final manuscript:
7
March
1983.
215
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