Measurement of Leakage by the Use of an Input—Output Model

Leakage due to the importation of goods and services is an important consideration in an impact analysis, since leakage reduces the multiplier effect. Through use of the input‐output technique, leakage coefficients can be estimated in order to determine the dampening effect of imports on sector multipliers. The only additional data requirement is information on the distribution of imports among the sectors of an economy. Leakage coefficients measure the indirect as well as the direct effects of the importation of goods and services. Leakage coefficients for changes in total output, income, and employment can be estimated from the standard input‐output model. Leakage coefficients are useful in research on area development, where measures of the total economy are needed. Estimates can be made of the “loss” of economic activity in a region due to imports and the “gain” which results from reducing imports. It is possible to estimate the reduction in leakage resulting from the elimination of part or all of the imports of one or more sectors of an economy.