Input-Output Multipliers, General Purpose Technologies, and Economic Development

Intermediate goods are another produced factor of production, like capital. Simple examples suggest that the multiplier associated with intermediate goods can be substantial, even larger than the one resulting from physical capital accumulation. This paper evaluates this insight using a model in which N goods are produced using all of the other goods as intermediate inputs. Calibrating the model using detailed input-output tables from the United States and 34 other countries confirms the importance of the input-output structure of an economy for economic growth and development. Eleven-fold income differences in a standard neoclassical model become 32-fold differences when intermediate goods are taken into account.