EXPLANATORY NOTES

1. Introduction

1.1 The Input-Output (I-O) Tables explain and analyze the relationship
between producers and consumers and its dependence with other
industries. It tracks the commodity flow (goods and services) from
one industry to another industry. The flow of commodities supplied
and used is compiled systematically in the form of input-output
tables.

1.2 The concepts and definitions used in the production of the

Malaysian Input- Output Tables 2000 follow the recommendations
by United Nations in the System of National Accounts (SNA), 1993
and 1968. The input-output tables in this report are therefore an
extension of the Final National Accounts for Malaysia for the year
2000 compiled by Department of Statistics.

1.3 In theory, input-output coefficients should relate to physical

quantities of commodities used in producing a given physical
quantity of another commodity. In practice, however, almost all
tables are prepared in money values. This is inevitable because
certain commodities, for example, services, are too heterogeneous
to be properly measured in physical terms. Nevertheless the
coefficients in value terms should be treated as if they were
technical coefficients. A corollary of this is that input-output tables
should be valued at constant prices in order to allow for
comparison between years.

1.4 The input-output coefficients calculated should be based on

commodities produced and commodities used. Quantities used
may differ from quantities purchased, the difference being changes
in inventories.

2. Statistical Units

2.1 In selecting the statistical unit for input-output tables, one of the
most important criteria should be to choose a unit, which is as
homogenous as possible in the sense of producing only one
commodity with one perfectly scaleable technology. What the latter
means is that if demand for establishments output increases by
one unit, the necessary input will increase in proportion. In this
report the Establishment is used as the statistical unit for input data
and the Commodity as the unit for output data.

2.2 The establishment is defined as business unit engaged in one

business activity in a single location. In the case of multi-activity
business unit, the activities are broken down into establishments
according to the activities engaged in. The establishment unit,

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 however, needs to be sufficiently distinct as a production unit so
that it is possible to collect from it meaningful information. In
principle, establishments produced one defined range of goods
and services. This range of goods produced is considered a
commodity. Establishment are grouped together to form an
industry (activity). Industries are classified in terms of its principle
product, which is defined to be commodity yielding the most value
added. In addition, industries may be producing a number of
secondary products. For the purpose of input-output analysis,
commodities are grouped so that a commodity in the sense of a
range of goods is the principle product of industry and one
industry only. The number of commodities is thus made equal to
the number of industries, which is a requirement for subsequent
manipulations of the data, in particular, for the calculation of
inverses.

3. Secondary Production

3.1 When an establishment produces commodities other its principal

product, they are classified either as secondary or as ancillary.

- A secondary activity is an activity carried out within a single

establishment in addition to the principal activity.

- An ancillary activity is a supporting activity, which is undertaken

in order to create the conditions within which the activities of an
enterprise can be carried out.

3.2 Although the objective is to find single- commodity establishments,

in reality most establishments also engage in secondary activities.
The make matrix (Table 2) reflects this situation as shown by the
large number of off-diagonal entries in addition to the principal
products on the diagonal.

3.3 Ancillary activities typically consist of such ancillary services, which

are used as inputs into most production processes. The values of
such ancillary services are normally small as compared with that of
the principal and secondary activities. Because of this, they are
treated as an integral part of the activities with which they are
associated.

3.4 The treatment of secondary production is one of the central issues

in the construction of symmetric input-output tables. Symmetric I-O
tables can either be commodity x commodity tables (recording the
input of commodities into production of commodities) or industry x
industry tables. In order to derive such symmetric tables,
assumptions have to be made as to the production technology
used in the different industries producing a specific commodity.
The nature of these assumptions will be discussed later on in the
text.

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4. Commodity or Industry Tables

4.1 In the construction of input- output tables, data on output and sales
and on input structures of establishment are used. The basic table,
i.e the absorption matrix, is estimated from available statistic and is
a commodity by industry table. As mentioned before, it is possible,
by using different assumptions, to derive pure tables from the
absorption and make matrices, these pure tables from the
absorption and make matrices, these pure tables being either
commodity by commodity or industry by industry.

4.2 Many economic models built on input-output tables seek to

analyse the direct and indirect effects on production that result
from an exogenous, i.e externally given change in final demand.
For this type of modeling, a commodity by commodity table is more
appropriate. Other models proceed to analyse the levels of the
basic primary inputs that would be consistent with a given level of
output. This type of calculation is most conveniently done if
industry x industry tables are used. However, the same results can
be obtained albeit with more difficulty if a commodity x
commodity table is used. For the present publication, both
commodity x commodity tables and industry x industry tables are
derived.

5. Valuation

5.1 The price paid by the purchaser of a product can be divided into
the following components :

- Basic price of a product as output

- Taxes less subsidies on the product
- Trade and transport margins in delivering the product to the
purchaser

5.2 The three main price concepts in national accounts are:

- The purchasers price is the price paid by the purchaser to take

delivery of a goods or service at the time and place required by
the purchaser. It includes any transport charges paid separately
by the purchaser.

- The producers price, is the price received by the producer for a

unit of a goods or service produced as output, including any tax
payable or excluding any subsidy receivable on a product as a
consequence of its sale or use (by the producer). It excludes
any delivery charges invoiced separately by the producer.

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 - The basic price is the price received by the producer for a unit
of goods or service produced as output, excluding any tax
payable or including any subsidy receivable on the product as a
subsequence of its sale or use. It also excludes any delivery
charges invoiced separately by the producer.

5.3 In input-output analysis it is important that all transactions be

valued in the same way. The purchase of one unit of a particular
commodity by any buyer is in input-output analysis assumed to
stimulate demand to the same extent. In this study all the main
tables are valued at basic values. The preference for basic values
over that of producers is based on several considerations, the
most important being:

- basic values provide the most homogeneous valuation along

the rows because taxes, and thus purchase prices, may differ
depending on the consuming sector; and

- basic values record the income received by the producer.

5.4 For imports an analogous price concept is adopted. Import are

valued at c.i.f (cost, insurance and freight), i.e the price of goods
delivered at the frontier of the importing country, or the price of a
service delivered to a resident, before the payment of any import
duties or other taxes on imports or trade and transport margins
incurred within the country.

5.5 Most of the tables produced are thus expressed in basic prices. As
a complement there is, however, an overview table (Table 1)
presenting the total supply and total demand, by commodity, for
the different components, at purchasers prices.

6. Level of Aggregation and Size of Tables

6.1 The potential maximum size of the Malaysian I-O tables is

governed by the existing national accounts classification
framework. The classification consists of a total of 1574
commodities, 221 industries, and some 283 different categories of
final demand. The desegregated supply and use data are coded
and balanced at this level of detail. A basic set of symmetric tables
was then produced at the 94 by 94 level.

7. Comparison with Other Input-Output Tables for Malaysia

7.1 The latest published input-output tables for Malaysia refer to the
reference year 1991. The tables in the present publication refer to

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 the reference year 2000 and were produced using largely the
same definitions and classifications as in 1991.

8. Tables

8.1 This publication contains one set of basic tables and two sets of
derived tables. In addition to the published tables there are
complementary tables, which can be acquired from the
Department of Statistics. The tables contained in this report are as
follows:

Basic Tables

Table 1 Total supply and Use of Goods and Services at Purchasers

Values, 2000.

Table 2 Make Matrix of Domestic Production at Basic Values, 2000.

Activity x Commodity

Table 3 Absorption Matrix of Domestic Production at Basic Values,

2000. Commodity x Activity

Table 4 Absorption Matrix of Imported Commodities at Basic Values,

2000. Commodity x Activity

Table 5 Absorption Matrix at Purchasers Values, 2000. Commodity

x Activity

Derived Tables, Commodity x Commodity

Table 6 Absorption Matrix of Domestic Production at Basic Values,

2000. Commodity x Commodity

Table 7 Absorption Matrix, Trade Margins on Domestic Production,

2000. Commodity x Commodity

Table 8 Absorption Matrix, Transport Margins on Domestic

Production, 2000. Commodity x Commodity

Table 9 Absorption Matrix, Commodity Taxes on Domestic

Production, 2000. Commodity x Commodity

Table 10 Absorption Matrix of Imported Commodities at Basic Values,

2000. Commodity x Commodity

Table 11 Absorption Matrix, Trade Margins on Imported

Commodities, 2000. Commodity x Commodity

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 Table 12 Absorption Matrix, Transport Margins on Imported
Commodities, 2000. Commodity x Commodity

Table 13 Absorption Matrix, Commodity Taxes on Imported

Commodities, 2000. Commodity x Commodity

Table 14 Input Coefficients, Domestic Production, 2000. Commodity x

Commodity

Table 15 Inverse Matrix, Total Requirements Per Unit of Final

Demand, Domestic Production, 2000. Commodity x
commodity

Derived Tables, Activity x Activity

Table 16 Absorption Matrix of Domestic Production at Basic Values,

2000. Activity x Activity

Table 17 Input Coefficients, Domestic Production, 2000. Activity x

Activity

Table 18 Inverse Matrix, Total Requirements Per Unit of Final

Demand, Domestic Production, 2000. Activity x Activity

9. Explanatory Notes for The Tables

9.1 Table 1 : Supply and Use Table. The table shows along the stub
the different commodities (goods and services). The left-hand part
of the table shows the components of the purchasers values of
commodities i.e the basic value of domestic production and
imports, commodity taxes, trade and transport margins. The right-
hand part of the table shows the different uses of the commodities
intermediate inputs as well as final uses valued at purchasers
values. Trade and transport margins refer to trade and transport
services. Where the distribution and transport services are directly
related to a specific commodity there are presented in two
separate columns. The remainder of the trade and transport
services is included as two commodities in their own right in
domestic production. To arrive at the same value of total output as
in the make matrix (Table 2), the total of the respective columns for
Domestic Production, Trade Margins and Transport Margins
have to be added together.

9.2 Table 2 : Make Matrix. This table shows the domestic production
of goods and services at basic values (see paragraph on
valuation). The different activities (industries) are shown in the
rows, and in the columns are shown the and services

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 (commodities) produced by the respective industries (i.e the
product mix). Thus the last two columns sum up the output of each
industry. Trade and transport margins are, in this matrix, presented
in the columns for trade and transport services respectively. The
diagonal entry in the matrix represents the industrys production of
principal products.

9.3 Table 3 : Absorption Matrix, Domestic Production. This is the very

basic input-output table in which correlation in the production
processes are spelt out, and from which the symmetric tables used
for modeling purposes are derived. The table shows, along the
column, the input required for a certain industrys total production.
The first part (rows and columns 1-94) shows the intermediate
requirement of domestically produced goods and services used, as
well as (rows 98 and 99) the taxes paid on inputs (domestically
produced and imported). In row 101, the Value added at basic
value is given. Value added includes compensation to labour and
capital in the form of wages and salaries and gross operating
surplus. Row 96 and 98 101 together constitute the so called
Primary inputs.

Along a row the entries show the different uses of the

commodities. The first ninety-four columns of the table show the
use of the commodities as intermediate inputs, and the second
part shows their use in different categories of final demand. The
sum of the row gives the total domestic production of the
commodities valued at basic values. In this table trade and
transport margins are added to the respective rows for trade and
transport services.

9.4 Table 4: Absorption Matrix, Imported Commodities. The table

presents the use of imported goods and services by commodity.
This matrix is collapsed into a single line (row 100) in Table 3.

9.5 Table 5 : Absorption Matrix, Purchasers Values. The table shows

the uses of imported and domestically produced commodities in
different industries as well as final demand valued at purchasers
values i.e with taxes and margins allocated to the commodities to
which they relate.

9.6 Table 6 13 and 16. : These tables have the same content as
tables 2 to 5. The difference is that tables 6 to 15 and tables 16 to
18 are converted from commodity x industry to commodity x
commodity and industry x industry. The technique for conversion is
briefly discussed on pages 23 27 in this report.

9.7 Table 14 (17). This table shows the input required for production
of the different commodities (and in the different industries) in the
form of coefficients. The table is derived from table 6 (16) purely
by dividing the cells into respective column-total.

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 9.8 Table 15 (18). This table is the so-called Inverse Matrix and it is
calculated from table 14 (17). The technique is described on pages
27 29 in this report.

10. Construction of the Commodity and Industry x Industry Input-

Output Tables, 2000

10.1 For mathematical input-output based modeling, symmetric tables

are convenient and sometimes required for analysis. In symmetric
tables columns and rows i.e output and use are classified in the
same way; either in terms of commodities or in terms of industries
(activities). Furthermore, the intermediate input matrix has to be
quadratic, i.e contain the same number of rows and columns. The
basis for the symmetric tables is the commodity x industry tables
(Table 3). Making certain assumptions about the input structure, it
is possible to convert this original commodity x activity tables to
either commodity x commodity or activity x activity tables. The
conversion is done utilizing the information on the productive
structure contained in the make matrix at basic values (Table 2).
Two basic alternative assumptions which determine the nature of
the conversion exist. These are generally referred to as the
commodity technology and the industry technology
assumptions.

10.2 The commodity technology assumption postulates that a

commodity has the same input structure regardless of in which
industry it is produced. The industry technology assumption on
the other hand, assumes that commodities produced by one
industry are all produced with the same input structure.

10.3 In a commodity x commodity table, the input structure for a

particular commodity will thus be the weighted average of the
input structures in the industries in which it is produced. The
derivation of the symmetric commodity x commodity table is done
by splitting every column vertically in part that are all proportional
to the production of commodities in the actual industry according to
the make matrix. The relationship between the values within each
column does not change. Then the split columns are added
together, so that the input needed to produce the particular
commodity in one industry is added to the input needed to produce
the same commodity in other industries (See example below).

10.4 For an industry x industry table it is assumed that the consuming

industry buys commodities from the producing industries in
proportion to how the total production of a commodity is divided
between industries. The activity x activity tables are thus derived
by splitting the rows in proportion to how the commodities originate
from different industries. These rows are then aggregated (See
example below).

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 Make matrix flows (M)

Commodity
Activity A B C Total
A 180 14 6 200
B 10 80 8 98
C 8 12 380 400
Total 198 106 394 698

Make matrix coefficients (C1)

Commodity
Activity A B C
A 0.91 0.13 0.02
B 0.05 0.76 0.02
C 0.04 0.11 0.96
Total 1.00 1.00 1.00

Make matrix coefficients (C2)

Commodity
Activity A B C Total
A 0.90 0.07 0.03 1.00
B 0.10 0.82 0.08 1.00
C 0.02 0.03 0.95
1.00

Matrix C1 gives the relative distribution of the commodities between

industries, i.e the market share of each industry. Matrix C2 gives the
internal output structure of each industry, i.e how its output is divided
between different commodities.

Input matrix commodity x industry, conversion to commodity x

commodity
Activity A Activity B Activity C
A B C A B C A B C

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Commodity 90% 7% 3% 10% 82% 8% 2% 3% 95%

Commodity
A
B
C

The relative shares are taken from matrix C2. Adding up all the A, B
and C columns respectively will give a commodity x commodity matrix.

Input matrix commodity x industry, conversion to activity x

activity
Activity
Commodity Activity A B C
A A 91%
B 5%
C 4%

B A 13%
B 76%
C 11%

C A 2%
B 2%
C 96%
The relative shares are taken from matrix C1. Adding up all A, B and C
activities row-wise will give an industry x industry matrix.

Technically the conversion of the commodity x activity table to

commodity x commodity and industry x industry involves a number of
matrix multiplication. If the input matrix, commodity x activity, is named
A, using the industry technology assumption, an industry x
industry matrix is derived through the following multiplication:

Ai = C1 x A

To obtain a commodity x commodity matrix the following

multiplication can be done:

Ac = A x C2

If, on the other hand, the commodity technology assumption is used,

the matrices are obtained by first transposing the make matrix, that is
the rows and columns are changing places. The transposed matrix in
coefficient form is then inverted and the commodity x commodity and
activity x activity matrices are calculated via matrix multiplication
involving the inverted matrix and the input matrix in coefficient form. It
is well known that the application of this method often show results

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that are unacceptable, insofar as input-output coefficients sometimes
appear that are extremely improbable or even impossible. There are
numerous examples of the method leading to negative coefficients,
which are clearly nonsensical from an economic point of view. That is
the reason why using this assumption was rejected in favour of the
industry technology assumption.

In the literature other ways of carrying out the conversion can be

found. The conversion to commodity x commodity table is, for
example, described somewhat differently in the UN Input-Output
handbook. It can, however, be shown that the two methods are
equivalent. The starting point is of course the make and absorption
matrices. Let the commodity x industry absorption matrix be A, the
industry x commodity make matrix be M, industry outputs, g, diagonal
industry ^outputs, , commodity outputs, q and diagonal commodity
outputs, q. In the UN handbook the flow matrix is derived (using matrix
algebra) as follows:

B = A * -1 (input coefficients)
^
D = M * q -1 (market share coefficients)

Ai = B*D

Which are the input coefficients, industry x industry.

To arrive at the flow matrix commodity x commodity the following

calculation have to be made :
^
Axc = Ai * q

Subsequently
^ ^
Axc = A * 1 * M * q -1 * q
This expression can be reduced to :

Axc = A * 1 * M

In our example we computed,

C2 = 1 * M

Ac = A * C2

Which can be written as

Ac = A * 1 * M

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 And thus Ac = Axc

11. The Inverse Matrix

11.1 The starting point for the discussion in this paragraph will be the
flow of Table 3 (commodity x industry), which comprises
intermediate consumption as well as primary inputs and final
demand. By using the industry technology assumption this table
has been converted to two different symmetric tables: Table 6
(commodity x commodity), and Table 16 (industry x industry).

11.2 By dividing each cell in the part of the matrix that refers to
intermediate demand and to primary inputs by the respective
column-total (total output), a coefficient matrix will result (Table 14).
Those coefficients express the relative share of input of goods and
services, imports, taxes, and of value added. One of the
fundamental assumptions of I-O analysis is that these coefficients
remain stable at least in the short-run. Over time structural change
will, however, gradually change the input structure, which is why I-
O tables will have to be redone in certain intervals.

11.3 The input structure shows what each sector requires to produce its
output. It however, tells nothing about the effects on production of,
for example, changes in final demand. The latter question is one
that can be addressed with I-O techniques. A change in final
demand of a particular commodity will not merely affect the
production of that particular commodity, but will also lead to
increase demand for the products used in its production. The latter
demand, in its turn, will require more inputs from yet other sectors.
It is thus possible to define two types of inputs. Direct inputs are
those purchased by the industry under consideration. Indirect
inputs are those purchased by all industries in which production is
required in order to supply inputs to the first industry. The derived
or indirect demand increases form an infinite chain of smaller and
smaller effects. The total sum of this converging series can be
calculated with the help of the inverse matrix.

11.4 The matrices and vectors used for calculating total production
changes due to changes in final demand can be presented as:

A f q

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 y

Matrix A represents the input coefficient matrix. Y is primary inputs,

q total output (=total input), q transpose of total output (=total
input) and f final demand. The basic input-output accounting
equation can then, using matrix notation, be written as :

q = Aq + f

The most convenient way to obtain the solution of the computation

of the accumulated effects is to use this basic equation above and
solve it for q as follows:

q Aq = f

(I A)q = f

q = (I A)-1 * f

The matrix, (I A)-1 is known as the Leontief inverse, or the matrix

multiplier.

This model assumes column-wise linear correlation and constant

returns to scale. Furthermore no substitution can be made
between inputs, including capital and labour.

12. Classification

The relationship between the Input-Output classification and the

National Accounts Industrial Classification, 2000 for industry and
Malaysia Standard Industrial Classification, 2000 for commodity is
shown at page 31.

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