Socio-Economic Analysis
Socio-economic analyses can help us assess the benefits and costs associated with mining and processing of various minerals and metals.
We use socio-economic analyses to quantify the contribution to society of mining, processing and consuming specific mineral and metals. In this way we can find the greatest benefits for society when mining, processing, consuming and recycling minerals and metals.
What is SEA?
Socio economic analysis is an umbrella term for theories that marry economic factors with impacts on human sociology. At its core, socio-economic analysis uses economic inputs to drive social change. It is a type of analysis that is commonly used to structure community development programs.
”Socioeconomics (also known as social economics) is the social science that studies how economic activity affects and is shaped by social processes. In general it analyses how modern societies progress, stagnate, or regress because of their local or regional economy, or the global economy. It also refers to the ways that social and economic factors influence the economy.” Source: Wikipedia
The Input-Output Model
To study the socio-economic assessment of a specific mineral or metal we make use of the input-output model.
What is the Input-Output Model?
Input-output analysis is a type of economic model that describes the interdependent relationships between industrial sectors within an economy. It shows how the outputs of one sector flow into another sector as inputs. Wassily Leontief, who was a Soviet-American economist, developed the input-output analysis method, earning him the Nobel Prize in Economics in 1973.
What are the key attributes of the Input-output model?
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Input-output analysis describes the interdependent supply chains between sectors within an economy.
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The input-output analysis table quantifies the flows of outputs from one industry (in rows) as inputs into another (in columns).
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In the input-output analysis model, the total economy-wide impact of an economic event can be analysed from the initial demand change and its direct, indirect, and induced impacts.
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The model depicts inter-industry relationships within an economy, showing how output from one industrial sector may become an input to another industrial sector. In the inter-industry matrix, column entries typically represent inputs to an industrial sector, while row entries represent outputs from a given sector. This format, therefore, shows how dependent each sector is on every other sector, both as a customer of outputs from other sectors and as a supplier of inputs. Sectors may also depend internally on a portion of their own production as delineated by the entries of the matrix diagonal. Each column of the input–output matrix shows the monetary value of inputs to each sector and each row represents the value of each sector's outputs.
Developed by Wassily Leontief in 1936, input-output models are an alternative to simple economic base and Keynesian approaches to modelling an economic system. Essentially, the models are used to describe and analyse forward and backward economic linkages between industries. They compile the industrial activity of an economic system into an input-output table that is built around a matrix of monetary transactions. These transactions can be recorded by industry or sector, which are groups of industries involved in similar production processes.
Types of Impacts in Input-Output Analysis
Through quantifying the supply chain across different industries in an economy, the input-output analysis can be used to analyse the economy-wide impacts that an initial change of final demand can make. The impacts can be categorized into the following:
Direct impact: The impacts of a change in final demand on the consumption of the directly associated inputs. For example, building a dam requires steel, concrete, workforce, and construction machinery. It thus has a direct impact on these inputs.
Indirect (secondary) impact: The impacts as a result of the suppliers of the directly associated inputs hiring workforce to meet the increased demand.
Induced (tertiary) impact: Accounts for the increase in personal consumption of goods and services resulting from the workers of suppliers.
Type I: effects relating specifically to effects resulting from its demand for local goods and services, such as chemical products, building materials, legal and financial advice, etc.
Direct effect effects resulting from the demand for local goods and services by the company itself.
First round & Industrial support effect effects resulting from the demand for local goods and services by the company's immediate suppliers, and their own supply chains.
Type II: Indirect effects resulting from the income earned by employees working on or off-site the operation; reinvested labour income (which may be spent on food, apparel, housing, entertainment and other) re-enters the economy and requires additional supporting jobs.
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The basic principle of input-output models is that the products sold (outputs) from one industry are purchased (inputs) in the production process of other industries. Therefore, it is plausible that a change in one industry linkage can affect the entire system of linkages.
For example, the steel industry uses inputs of coal (outputs from the coal industry) to produce goods. These goods are then purchased as inputs in production by other industries, such as the construction industry. What would the impact of a rise in demand for goods produced by the steel industry be on the construction industry, other industries, and the entire economic system?
An input-output model could be developed to address these interindustry dependencies. This type of information provides geographers with a disaggregated view of an economic system in that industries are connected on the basis of buyers and sellers. Data on the economic linkages between industries are typically collected from surveys of the economic system being modelled and compiled in a table. The table is constructed around a matrix of monetary transactions. The transactions that take place between industries represent a flow of goods and services.They are tabulated based on the value of sales (outputs) and purchases (inputs) of intermediate goods between industries. Like any table, an input-output table consists of a series of columns and rows. The rows of the table reflect the value of sales (outputs) made by each industry. Sales can be further divided to represent sales to final demand. In these categories are included sales of output made to the consumer (households), sales to government (local, state, federal), sales of investment goods (capital equipment), and sales destined to be outside the economic system being modelled (exports).
The columns of the input-output table reflect the value of purchases (inputs) that are made by each industry. Purchases can be further divided to represent purchases from value added and purchases of imports. In these categories are included returns to capital (profits and dividends), labour costs (wages and salaries), and purchases of inputs made from outside the economic system being modelled.
Example of OECD data based Inputs. Row and column sorting of OECD data per sector of the economy
Example of OECD data base Coefficient Calculation. Coefficient calculation of Type I & Type II multiplier, as well as, direct, indirect and induced effects.