SOCIAL ACCOUNTING MATRICES

SOME USES OF MULTIPLIERS

AND
DECOMPOSITION ANALYSIS

JEFF ROUND

January 2012

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Table 1: A Basic Social Accounting Matrix (SAM)
(1) (2) (3) (4) (5) (6) (7) (8) TOTALS

(1) Intermediate Household Government Fixed capital Exports Demand for

Products consumption consumption consumption formation products
and change
in stocks
Production Domestic Sales of
(2)
Activities sales commodities

(3) Gross value Net factor Factor

Factors of production added income from income
payments to RoW receipts
factors
(4) Labour and Inter- Distributed Current Net current Current
Households mixed household profits to transfers to transfers household
income transfers households households from RoW receipts

(5) Operating Current Net current Current

Institutions Corporate surplus transfers to transfers enterprise
(Current accounts) enterprises enterprises from RoW receipts

(6) Net taxes on Direct taxes Direct taxes Net current Current
Government products transfers government
(&NPISHs)1 from RoW receipts

(7) Household Enterprise Government Capital Net capital Capital

Combined capital savings savings savings transfers transfers receipts
accounts from RoW

(8) Imports Current Aggregate

Rest of World (RoW) external receipts from
(combined account) balance RoW

Supply of Costs of Factor Current Current Current Capital Aggregate

TOTALS products production income household enterprise government outlays outlays to
activities payments outlays outlays outlays RoW

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Motivations for compiling a SAM

Description
- Useful snapshot of economic structure

Construction
- Good organising framework
- Draws together data from disparate sources

Basis for modelling

- Data for calibrating macro and macro-meso models
- Multiplier models capture structural features
- CGE models, microsimulation, etc.

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SAM-based modelling
Multiplier models (fixed price models)
- many examples in development economics
- decomposition analysis is prominent
CGE models (flexible price models)
- many examples in development economics
- trade, income distribution and poverty analysis
Pros and cons between multiplier and CGE models
- former are a special case of the latter
- advantages and disadvantages of both approaches
multiplier models offer simple insights and transparency
CGE attempt to capture more endogenous behaviour
- N.B. need to note that all models invoke assumptions
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SAM-based multiplier models

- Aim is to capture the circular flow of income: producers to

consumers and vice-versa.

- We need to distinguish between endogenous and

exogenous accounts

- Exogenous transactions: usually defined as the income and

outlays of government, capital investment and rest of the
world

- Endogenous transactions: usually the production, factor and

institution (households) accounts capturing the circular
flow of income

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Table 2. SAM: Endogenous and Exogenous Accounts

ACCOUNT Endogenous Exogenous TOTAL

(1) (2) (3) (4)

Intermediate Household Other final Total demands

Products (1) consumption consumption demands for products
expenditures

T11 T13 x1 y1
Value added Factor income from Total factor
Factors (2) abroad income receipts

T21 x2 y2
Factor income to Inter-household Non-factor income Total household
Households (3) households transfers receipts incomes

T32 T33 x3 y3
Imports, Other factor Savings, etc Total exogenous
Other accounts (4) indirect taxes payments receipts
(exogenous)

l1 l2 l3 l
Total activity Total factor income Total household Total exogenous
TOTAL outputs payments outlays payments

y2 y3 y4 x

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Multiplier models: how they work ...
... Secondary effects:
increase in supply of inputs (standard input-output
multipliers)

Secondary effects: spending by households

Factor income payments for factor services supplied
(stemming from primary effects)
Spending out of income by households

Further secondary (i.e. multiplier) effects:

Output effects
Income effects
 Example:
a simple SAM-based multiplier analysis
1 2 L K RHH UHH Co Gov Cap RoW TOT
Sector 1 10 50 40 30 5 5 10 150
Sector 2 30 20 10 40 10 10 10 130
L 60 30 90
K 40 20 60
RHH 50 10 60
UHH 40 30 10 30 10 120
Co 30 30
Gov 20 20
Capital 10 20 20 -25 25
RoW 10 10 10 30
TOTAL 150 130 90 60 60 120 30 20 25 30 715

1 2 L K RHH UHH F-D TOT

Sector 1 10 50 40 30 20 150
Sector 2 30 20 10 40 30 130
L 60 30 90
K 40 20 60
RHH 50 10 60
UHH 40 30 50 120
P-I 10 10 30 10 40 5 105
TOTAL 150 130 90 60 60 120 105 715

Sector 1: Agriculture Sector 2: Manufacturing

 Example:
a simple SAM-based multiplier analysis
Exogenous shock:
Extra 10 units demand for agricultural products
(e.g. exports?)

What are the expected effects under the

multiplier model approach?

Takes account of repercussions due to:

Intersectoral linkages
Stimulus due to additional income and spending
 Example:
a simple SAM-based multiplier analysis
Under input-output assumptions:
Sector 1 output increases by 11.9
Sector 2 output increases by 2.8
RHH income increases by 3.0
UHH income increases by 4.2
Under SAM-based multiplier assumptions:
Sector 1 output increases by 22.1
Sector 2 output increases by 10.0
RHH income increases by 6.9
UHH income increases by 8.7
Multiplier decomposition

Fixed price multipliers dy (I C )1 dx Mdx

Pyatt-Round (P-R) multiplier decomposition
M M3 M2 M1
M1: within-group effects
M2 : cross-group effects
M3 : between-group effects
Stone additive decomposition

M I M1 I M2 I M1 M3 I M2M1

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Table 3. Selected Multiplier Effects Derived from the Ghana SAM
(Injections of 100 units of income)

Account in which Account affected by I M1 I ( M 2 I ) M1 ( M 3 I ) M 2 M1 M

injection originates injection

Cocoa Urban households 40 67 107

Rural households 28 43 71
Cocoa 100 7 108
Total activity impact 100 62 244 406
Mining Urban households 22 41 63
Rural households 17 26 43
Mining 100 3 4 107
Total activity impact 100 36 148 284
Education and health Urban households 50 81 132
Rural households 32 52 84
Health and education 100 9 109
Total activity impact 100 14 296 410
Source: Powell and Round (2000, table 5).

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Defourny-Thorbecke (D-T) decomposition
- argued that P-R has operational limitations: i.e. difficult
to identify what are the important paths (loops) in the
process
- use structural path analysis based on graph theory
- computes every conceivable loop in following through an
exogenous injection and its resultant impact on
endogenous accounts
- requires software to compute and rank all path
multipliers (Direct influence, Total influence, Global
influence)
- example based on SAM for Korea (EJ 1984)
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Pyatt-Round decomposition: an extension
- aim is to show how the P-R decomposition can achieve
the D-T decomposition objectives
- the method shows the contributions to an element of the
total multiplier, mij due to different paths
- consider impact on income of HH i of unit increase in
output of activity j
mIP .ij m3. II .i M2.IP m1.PP . j

- instead we form an rAs transform based on m3. II .i and m1.PP . j

3. II .i M2.IP m
MIP .ij m 1.PP . j
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Example: Indonesia SAM
- SAM: 9 institution groups, 13 production activities
- I7: urban unskilled households
P9: public works
- to consider the effects of a one unit injection of
expenditure into public works (P9) on the income of
urban unskilled households (I7)

mIP .7,9 0.2167

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Table 4: A representation of the global influence of path multipliers under the
Pyatt-Round decomposition:

Products P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Institutions
I1 0.0001 0.0001 0.0004 0 0 0.0002 0 0 0.0097 0.0003 0.0001 0 0
I2 0.0003 0.0002 0.0010 0.0001 0 0.0005 0 0 0.0036 0.0012 0.0003 0 0.0001
I3 0.0001 0.0001 0.0007 0.0001 0 0.0004 0 0 0.0011 0.0008 0.0004 0 0
I4 0.0001 0.0002 0.0012 0.0001 0 0.0008 0 0 0.0016 0.0016 0.0008 0 0
I5 0 0.0001 0.0007 0.0004 0 0.0024 0 0.0001 0.0162 0.0043 0.0005 0 0.0003
I6 0 0 0.0001 0.0003 0 0.0005 0 0 0.0018 0.0007 0.0002 0 0.0001
I7 0.0002 0.0005 0.0040 0.0034 0.0003 0.0145 0.0003 0.0004 0.0945 0.0270 0.0036 0.0001 0.0015
I8 0 0 0.0003 0.0013 0 0.0013 0 0 0.0039 0.0016 0.0005 0.0001 0.0001
I9 0 0 0 0 0 0 0 0 0 0 0 0 0

Total (m7,9) 0.2167

Source: Data from Keuning and Thorbecke (1992)

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 Poverty analysis
What does the SAM-based multiplier analysis give
us?
Income responses to socio-economic groups of HHs
Sectoral responses

What does a SAM-based analysis not give us?

Income responses to individual households
Poverty analysis needs some additional information on
how individual incomes (and expenditures) change
Poverty elasticities for each HH group
Need to assume an analytical income distribution
 Poverty analysis

Calculating the effects on HH group (mean)

income
yh Mx j
Translate this group mean income into
change in poverty (using poverty elasticities)

dQh dyh * dx j
h h M hj
Qh yh xj
 Table 7: Indonesia poverty calculations
Table 7: Percentage change in numbers of poor people (dQ/Q) arising from a one per cent change in exogenous sectoral demand (dxp/xp)

Production activity Initial Household groups

exogenousAgricultural Small-scaleMedium-scaleLarge-scale Rural, Rural, Urban: Urban: All Indonesia
sectoral demand
employees farmers farmers farmers non-agricultural
non-agricultural low skill high skill households
(Rp billions) low skill high skill
xP 24 25 26 27 28 29 30 31

47 Food crops 154.83 -0.005 -0.008 -0.045 -0.085 -0.017 -0.019 -0.010 -0.029 -0.01
48 Other crops 1447.61 -0.048 -0.038 -0.297 -0.656 -0.144 -0.156 -0.092 -0.256 -0.11
49 Livestock 116.08 -0.003 -0.004 -0.031 -0.074 -0.013 -0.015 -0.008 -0.022 -0.01
50 Forest & wood 1298.72 -0.020 -0.025 -0.200 -0.412 -0.152 -0.135 -0.093 -0.245 -0.08
51 Fishery 132.94 -0.004 -0.004 -0.029 -0.060 -0.015 -0.015 -0.010 -0.026 -0.01
52 Mining 12236.31 -0.024 -0.029 -0.258 -0.366 -0.270 -0.360 -0.205 -1.191 -0.13
53 Food processing 335.85 -0.007 -0.009 -0.064 -0.111 -0.036 -0.033 -0.022 -0.058 -0.02
54 Textiles 168.20 -0.002 -0.002 -0.020 -0.029 -0.018 -0.014 -0.014 -0.033 -0.01
55 Paper & metal products 4082.79 -0.015 -0.019 -0.168 -0.230 -0.187 -0.148 -0.159 -0.412 -0.09
56 Chemicals & minerals 2646.81 -0.011 -0.014 -0.115 -0.163 -0.131 -0.113 -0.101 -0.301 -0.06
57 Electricity, gas & water supply 25.16 0.000 0.000 -0.001 -0.002 -0.002 -0.002 -0.001 -0.005 0.00
58 Building & construction 4509.53 -0.041 -0.050 -0.410 -0.656 -0.476 -0.336 -0.281 -0.710 -0.20
59 Public works: agriculture 522.49 -0.025 -0.007 -0.049 -0.076 -0.039 -0.038 -0.021 -0.068 -0.02
60 Public works: transportation 848.61 -0.006 -0.007 -0.052 -0.079 -0.073 -0.049 -0.053 -0.130 -0.03
61 Public works: utilities & commerce 487.39 -0.003 -0.004 -0.028 -0.043 -0.040 -0.027 -0.030 -0.071 -0.02
62 Public works: other 654.84 -0.005 -0.006 -0.047 -0.075 -0.064 -0.043 -0.047 -0.108 -0.03
63 Trade & transport services 49.41 -0.001 -0.001 -0.006 -0.008 -0.007 -0.005 -0.005 -0.013 0.00
64 Restaurant & hotel services 386.45 -0.006 -0.008 -0.067 -0.111 -0.042 -0.040 -0.038 -0.100 -0.03
65 Land transport 45.10 -0.001 -0.001 -0.006 -0.008 -0.007 -0.005 -0.005 -0.011 0.00
66 Other transport & communication 403.94 -0.003 -0.003 -0.025 -0.037 -0.028 -0.028 -0.026 -0.093 -0.01
67 Finance, real estate & business services 159.56 -0.002 -0.002 -0.016 -0.024 -0.012 -0.015 -0.014 -0.050 -0.01
68 Education & health 917.54 -0.012 -0.013 -0.097 -0.159 -0.089 -0.428 -0.071 -0.499 -0.05
69 Personal & household services 498.14 -0.005 -0.006 -0.041 -0.063 -0.060 -0.054 -0.045 -0.109 -0.03

Total 32128.30 -0.25 -0.26 -2.07 -3.53 -1.92 -2.08 -1.35 -4.54 -0.97
More applications of multiplier analysis ...

Sri Lanka
- early study which established the P-R decomposition
method
- observation that between-group effects dominate other
multiplier effects
- observation that some household groups are relatively
unaffected no matter where the impulse originates
- Stone observed that distributional effects in the third
term are approximately invariant (Stone phenomenon)

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 Sri Lanka multiplier decomposition

Source: Pyatt and Round, 1979

More applications of multiplier analysis ...

Ghana
- example of the Pyatt-Round decomposition to examine
structure, using Stone additive method
- confirmed the Stone phenomenon

Korea
- Defourny-Thorbecke structural path analysis
- indirect effects may produce significantly larger impacts
than direct (elementary) paths

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More applications of multiplier analysis ...
Indonesia
- Keuning & Thorbecke used SAM multiplier analysis to
trace through effects of government budget retrenchment
(i.e. negative effects)
- ten household groups, effects on income distribution more
sensitive to exogenous shocks
- also build in loss of imputed benefits due to reduction in
health and education

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 Reflecting on fixed price multiplier models
Advantages
Relatively simple to comprehend
Simple to compute (Excel, spreadsheet)
Based on structural features exhibited by base SAM

Disadvantages
Responses at the margin might differ from those on average
Bottlenecks will mean multiplier effects are overestimated
Price effects might also mean effects are overestimated
Limited endogenous behaviour will mean effects are
underestimated
SAMs: current work and in prospect

SAM construction
- mathematical balancing methods have predominated
- more work needed on basic surveys and data assembly
Design of SAMs
- current work on multipliers and the Stone phenomenon
- indicates that there is an optimal design for
distributional analysis
Environmental extensions
- environmental and satellite SAMs show much promise

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