Wassily Leontief
Citation: For the development of the input-output method and for its application to important economic problems.
The key idea
An economy is a matrix. Each sector produces output by buying inputs from other sectors. Once you know the matrix of inter-industry flows, you can compute the total impact of any final-demand change.
The explanation
Leontief's input-output tables decompose an economy into sectors and the flows between them. The Leontief inverse (I - A)⁻¹ — where A is the matrix of input coefficients — answers questions like: 'if final demand for cars rises by $1, how much extra steel, electricity, and labour are required, accounting for all the indirect ripples?'
Why Africa should care
Every input-output multiplier estimate cited in the South African Reserve Bank, Kenya National Bureau of Statistics, or AfDB reports comes from Leontief's framework. The fiscal multipliers debated in COVID-stimulus discussions for African economies are computed directly from Leontief inverses. Multipliers matter especially in commodity-dependent economies where a single sector (oil in Nigeria, cocoa in Côte d'Ivoire, tea in Kenya) has outsized ripple effects.
How to use it
Before believing a 'this project will create X jobs' claim, ask whether X counts direct employment only or includes indirect multiplier effects — and if the latter, what assumptions about A drive the answer.
Canonical works
- Wassily Leontief (1986) "Input-Output Economics" Oxford University Press
- Wassily Leontief (1941) "The Structure of American Economy, 1919-1929" Harvard University Press
More from Foundations · 1969-1979
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- 1971Simon Kuznets
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- 1972Kenneth Arrow and John Hicks
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- 1974Gunnar Myrdal and Friedrich Hayek
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