Direct and indirect factor income shares at the sectoral level: An alternative method using input-output analysis

Abstract

The purpose of the paper is to suggest a method to decompose gross output or total input in an alternative way at aggregate and sectoral levels using elementary input-output analysis. Total input consists of domestic and imported intermediate inputs, and value-added. Domestic intermediate inputs are produced by domestic firms, and thus can, again, be decomposed into the same three components following the input structures of the economy or the industries. The same decomposition can be repeatedly applied, and finally domestic intermediate inputs can be decomposed into ‘indirect’ value-added and imported intermediate inputs. In conclusion, we can decompose gross output into four components, direct and indirect value-added and imports, or equivalently, direct and indirect, domestic and foreign value-added. The results of the paper can be compared among countries, among years, among industries, and among groups of industries, and the results can be used to study the characteristics of the industries, the environment of domestic and global markets, and their changes. We applied the decomposition method proposed in the paper to Korea’s input-output tables for 1970-2019 at aggregate and industry levels.