Linking hypothetical extraction, the accumulation of production factors, and the addition of value

Abstract

In industrial ecology, approaches have been developed to analyze the contribution of specific sectors to environmental impacts within supply chains. In economics, a range of methods addresses the forward linkage (use of output) and backward linkage (dependency on inputs) of sectors, and the analysis of key sectors. This article offers a formal investigation of the relationship between these. It shows that both the analysis of supply chain impacts and of intersectoral linkages can be seen as special cases of a more general hypothetical extraction method (HEM). In HEM, sectors' role is assessed as the effect of their removal on the input–output model's solution. HEM also allows for the (partial) extraction of individual transactions. HEM thus offers a flexible approach to assessing the contribution of one or several sectors, or transactions, or parts thereof, to value added or footprint of any final demand. It can be applied to study the environmental footprints of companies or intermediate products, the contribution of certain inputs to sectors, or the potential impact of disruptions of supply chains on producers and consumers. In this article, the price model for HEM is introduced to identify the contribution of the extracted (target) sectors to the price or unit footprint of a commodity.