Direct and indirect transactions and requirements

• Published in: IDEAS Working Paper Series from RePEc
• Main Author: Coskun, Husna Betul
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2019
• DOI: 10.31219/osf.io/w2a4d

The indirect transactions between sectors of an economic system has been a long-standing open problem. There have been numerous attempts to define and mathematically formulate this concept in various other scientific fields in literature as well. The existing indirect effects formulations, however, can neither determine the direct and indirect transactions separately nor quantify these transactions between two individual sectors of interest in an economic system. The novel concepts of the direct, indirect and total transactions} between any two sectors are introduced, and the corresponding requirements matrices are systematically formulated relative to both final demands and gross outputs, based on the system decomposition theory. It is demonstrated theoretically and through illustrative examples that the proposed requirements matrices accurately define and quantify the corresponding direct, indirect, and total interactions and relationships. The proposed requirements matrices for the US economy using aggregated input-output tables for multiple years are then presented and briefly analyzed.