Product-to-Product Tables via Product-Technology with No Negative Flows

This paper presents and evaluates a way of making product-to-product tables from Use and Make matrices that are of immediate relevance to any statistical office that makes input-output tables. Two ways of making a product-to-product table are in common practice: one based on the product-technology assumption and the other on the industry-technology assumption. The industry-technology assumption is recognized as highly implausible but is often used because the product-technology assumption frequently leads to small negative flows which make no economic sense. This paper shows how a slight adjustment in the product-technology assumption leads to an algorithm that is certain to avoid negative flows yet keeps close to the spirit of the product-technology idea. Some details of the application of this method to the USA table for 1992 are reported. Similar applications to every American table since 1958 have given consistently sensible results. A computer program for the method is available.