Extension of the Leontief Input–Output Model to Accommodate New Concepts of Sustainability and Social Well-Being
The phenomenon of production and consumption of commodities and services is at the centre stage of economic theory and policy. However, it is now well known that any production process will have a bio-physical foundation, and the entropy law will have a role to play in economic processes. Consequently, sustained economic growth will require a continued support of the ecosystem for the economy by way of resource supply and waste absorption. Characterizing sustainability as a process of non-declining inter-temporal well-being of a society, the paper first expands the Leontief input–output model to incorporate the environment as a sector of resource extraction and waste disposal, in addition to the usual sectors of industrial production. Secondly, it factors in the ecological processes of resource regeneration and waste absorption by the ecosystem explicitly into the dynamic version of the Leontief model of multi-sectoral growth. This is helpful for deriving the sustainability condition of economic growth, by recognizing the economy–ecosystem interactive linkages. Since sustainability is conceptualized as a monotonic behaviour of some well-being index, which has as its basis the satisfaction derived by households from consumption, the paper further builds on Leontief’s model of inter-industrial interdependence, with a view towards developing an index of well-being, as an alternative to that of per capita GDP. It offers a new approach to modelling an economy, with the objective of optimizing the use of a production system with inter-sectoral interdependence for attaining a level of human satisfaction at the societal level, without any requirement for monetary evaluation of satisfaction conceived at an abstract level. In this context, the paper shows how the essence of Leontief’s notion of interdependence can be extended not only to the ecosystem–economy interactive interface, but also to the analysis of the level, composition and distribution of consumption for delivering social well-being as an output of such consumption.
KeywordsInput–Output models Leontief interdependence Environment and natural resources Sustainable development Ecological economics
JEL CodeC67 (Input–output models) O13 (Natural resource and environment under economic development) Q56 (Environment and development: sustainability) Q57 (Ecological economics)
The author would first like to thank the Peter Wall Institute of Advanced Studies of the University of British Columbia (UBC) and the Department of Electrical and Computer Engineering of the same university for supporting his work in developing the research ideas behind this paper. He also would like to thank Prof. Kakali Mukhopadhyay of Gokhale Institute of Politics and Economics, Pune, and McGill University, Montreal, Canada, for inviting him to deliver the keynote address in the 19th National Conference of the Input–Output Research Association of India, 2017. He would further like to thank Prof. Jose Marti of the Department of Electrical and Computer Engineering of UBC, and Mr. Ehssan of his i2sim research team, for many fruitful interactions and exchanges of ideas. He would finally wish to express thanks to Mr. Sovik Mukherjee for his valuable research assistance. However, the burden of all assertions in the paper lies with the author.
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