Construction and Application of Regional Input-Output Models: Assessing Water Consumption in South East and North East of England
Yang Yu, Klaus Hubacek, Dabo Guan,Kuishuang Feng
Sustainability Research Institute (SRI), School of the Earth and Environment, University of Leeds, Leeds, LS2 9JT, United Kingdom
ABSTRACT
Water consumption increases dramatically as a result of economic development in the UK. There is a regional disparity of water consumption with regards to different economic sectors, particularly, between the South East and North East of England. This paper generates two regional input-output (IO) tables by using Location Quotient technique and develops an extended IO model of water consumption for South East of England and North East of England. Through analysis of water consumption using the extended regional water IO model and backward and forward linkage analysis, we find that chemical sector is the biggest water consumer in both regions, and other key water consumers including food processing, paper, and agriculture sectors. There are also differences between two regions in terms of water consumption. In the South East, services sectors such as retail distribution, hotels and catering and education are considerable water consumers, while machinery and equipment and metal sectors are the key water consumers in the North East. In addition, the input-output model allows us to distinguish the direct and indirect water use. The agriculture sector uses extensive amount of water directly, while the service sectors consumes a large amount of water indirectly to satisfy their own demand. In this study, underlying analysis of household water use, the South East uses more water than the North East and lifestyle patterns play significant role in this disparity.
Key words: water consumption, regional input-output, location quotient, backward linkage, forward linkage
1. Introduction
Water is an essential natural resource in any society and nations, and water consumption increases dramatically as a result of economic development. The demand for freshwater consumption has boosted over four fold in the last half century worldwide. Water for agricultural and industrial production is the main part of this consumption, and the demand for household use also growing due to population growth, rapid urbanisation and lifestyle change. Because increasing prosperity across the world has allowed more and more people to enjoy the goods and services. World Resources Institute projected that the total number of people who live in water-scarce nations (less that 1000 cubic meters/capita/year) will reach approximately 13-20% of the world total population by 2050 (OECD, 1998). Middle East and Africa will be the most affected parts, and most of countries in the world will be involved. There will be some countries affected by drought and restricted supply although they have adequate total water resources. The potential threat of climate change on hydrological system and food production contributes to a further uncertainty to future projections.
1.1 Water Consumption in UK: a Regional Disparity
Unexceptionally, like other countries, water consumption inUK was experiencing a remarkable boost as the UK has the fastest economic growth rate in the EU. However, there is a regional disparity of water consumption in terms of economic sectors in UK, for example agriculture is the major consumer in the East of England, while the services sector consumes a large amount of water in the South East.
1.1.1The South East Region
The South East is one of most flourishing regions in the UK and in Europe. There is a wealthy economy and a high living standard in this region. In terms of the economic performance over the period 1997-2003, South East achieved a fastest growth in Gross Value Added (GVA) per head at 35.3%, a second highest absolute level of GVA per head at 35.3%, a lowest unemployment rate of 4.2%, as second highest household income per head at about ￡14,300 (South East England Development Agency, 2006). In terms of expenditure, which is averaged over recent three years, households in the South East spent the second highest weekly, just after London. Transport is the highest spending category, households in the South East spend ￡70 a week and 16% more than the UK average. Also, spending on sports admissions, subscriptions and leisure class fees in the South East region is the highest and 22% higher than the UK average (ONS, 2006). However, as a rapid growth region, it suffers a large number of environmental pressures which become barriers for the South East to achieve a sustainable future. Among those pressures, water shortage stands as one of the biggest challenges. The region is one of the driest and most densely populated regions in UK. The South East has the highest amount of water usage per capita in Europe, while there is less water available per capita than some countries such as Spain. The domestic water consumption per capita is higher than in the UK average, with an average of 165 liters per head per day, while the rainfall per capita is lower than that in Oman (IPPR, 2005). Also the river flows and groundwater levels are very low due to low rainfall in the South East; consequently leading to many environmental impacts. For instance, in some rivers, fish spawning has been disrupted because of lack of access to their breeding grounds(IPPR, 2005). As population increases, the overall water demand is estimated to rise significantly. Moreover, as the world’s climate changes, the South East will experience more frequent water shortages in summer and more floods in winter.
1.1.2 The North East Region
The North East is the smallest of nineadministrative regions of England in terms of population. And it is also the smallest geographically, except London. During the late decades of the 20th century, the major feature of the economic growth of North East has arguably been comparatively fallen off, as proved by the growing ‘productivity gap’ between the North East and the UK national average in terms of economic development (North East Development Agency, 2006). There are some reasons to induce the economic depression, for example the weak capacity of the North East to respond to the growth of globalisation, and the decrease of heavy industry. The economic growth in North East was around an annual average of 4% in current price terms between 1989 and 2001, while there was average economic growth across all UK regions of 5.4% per annum and even achieved 6.3 % in the fastest growing region - the South East. In 2000, the North East acquiredthe lowest GDP average in the UK, with only 77% of the European Union, and the lowest Gross Value Added (GVA) in England(North East Development Agency, 2006). With regard to the expenditure, households in the North East spent the least, which 19% less than the UK average(ONS, 2006). On the transport category, the highest spending category in the UK, households in the North East spent the least with ￡47 a week and 23% lower than the UK average. Ownership of car or van is also lowest in this region (ONS, 2006). In terms of water resources, North East region is regarded as wet receiving enough rainfall to feed the whole land area with an825 mm depth. Of those rainfalls, most of them cover the hills of the west of the region, and a smaller amount in the York and Doncaster area. Although evaporation and take-up by vegetations, there are still about 2,940 liters a day for the region’s residents, or sufficient to fill 290 buckets (Environment Agency, 2001). However, people can not use all this water, as we need to leave sufficient in rivers, streams and aquifers to maintain the natural environment. The plentiful fresh water supply of North East is a key industrial and environmental asset to the region and the whole country. The abundance of fresh water is mainly because of past investment in Europe’s largest man-made reservoir in Northumberland (North East Assembly, 2005). Although the water resources of North East is plentiful, water consumption per capita is much lower than South East region and the total water consumption in the North East is the lowest in England (Environment Agency, 2001).
Map 1The Regions of England Map
Source: Pictures of England, 2001
1.2 Aims and Objectives of the Research Project
The aims of this paper areto assess and compare the water consumption both direct and indirect in the South East of England and North East of England. We firstly construct two regional input-output tables; secondly we extend the regional input-output model to a water input-output model, then apply the water input-output model to evaluate water consumption in two regions and investigate which sector consumes more water in each region; thirdly we
identity the key or leading sectors which have dominant influence in terms of water consumption using backward and forward linkage analysis; fourthly we identify the main drivers behind the water consumption in economic sectors and analysis different structure of water consumption between two regions; finally we suggest solutions to reduce water consumption.
2. Literature Review
The following section mainly based on summaries of several books, Richardson (1972), Victor (1972), Jensen et al. (1979), Hewings (1985), Miller and Blair (1985). As we think those fivebooks gave a good insight of the literature of input-output model.
2.1 Rationale and History of Input-Output Models
The fundamental purpose of the input-output model is to analyse the interdependence of industries in monetary units in an economy (Miller and Blair, 1985). Input-output analysis was developed by Wassily Leontief in the late 1930s, and for his contribution in this area, he received the Nobel Prize in Economics Science in 1973. The input-output model based on a system of linear equations, which represent for the distribution of an industry’s product throughout the economy. Leontief applied this technique in the United States tables for 1919 and 1929 in 1936, a ninety-six sectors table was created in 1939 (Richardson, 1972).
The development of national input-output models had much progress in the 1940s and 1950s. Leotief published his first book of “The structure of American economy” with complete theoretical and empirical apparatus in 1941 (Garfield, 1986). In 1942-4, the work was carried on at the Bureau of Labor Statistics of US, and in 1944, the first practical application was built to estimate the consequences of the ending of the war on employment (Richardson, 1972). The United Kingdom (UK) government constructed a full table for 1954 based on the prior input-output work on 1948 data, and then the 1963 table with a seventy sector was published in early 1970s (Richardson, 1972). In other countries such as Holland and Japan, the notable work on creation of input-output tables has also been developed.
2.2 Regional Input-Output Model
The development of regional input-output framework was also back to the early 1950s. Those early studies were quite crude procedures compared with today’s standards, because they utilised unadjusted national input coefficients (Richardson, 1972). Isard summarised his ‘ideal’ interregional model in 1951, an ideal yet to be completed since it requires considering a regional industry as if it were a completely different industry from the same industry in another region. In 1953, Chenery created a two-region model for Italy (Chenery 1953, cited in Richardson 1972 p. 11). During the same time, Leontief developed his international model in 1953 (Leontief, 1986). However, the use of unadjusted national coefficients wasregarded as being extremely disputed, because regional coefficients are recognised to vary significantly from national coefficients. Moreover, the industrial mix within any economic sectors probably differs notably between the region and the nation, and the regional technical production functions may vary with nationally (Jensen et al., 1979).
The latter developments had more influence on the pattern of regional input-output research. Moore and Petersen in 1955 firstly adjusted national coefficients as approximations of regional coefficients to take account of ‘differences in regional production processes, marketing practices, or product-mix’ (Moore and Petersen1955, cited in Richardson 1972 p. 12). Several years later, Hirsch generated a regional input-output model for St Louis Metropolitan Area in 1959 with input and output data gained by survey (Hirsch1959, cited in Richardson 1972 p. 12). This work set the pattern for regional input-output framework in 1960s.
However, as survey-based input-output tables werehigh cost and time-consuming, the semi survey and non-survey techniques were widely applied. There are many non-survey techniques include regional weights and aggregation techniques, location quotient, supply-demand pool, commodity balance, RAS and many others (Jensen et al., 1979). Shen (1960) and Czamanski and Malizia (1969) applied regional weighting and aggregation techniques to group the highly disaggregated national input-output table into a more aggregated regional table (Shen 1960, Czemanski and Malizia 1969, cited in Jensenet al. 1979 p.33). There were varied applications on location quotient approaches, include simple location quotient, purchases only location quotient, the expenditure location quotient and cross-industry location quotient methods, which compared the relative importance of an industry in a regional and its relative importance in the nation. In the United States, CONSAD Corporation applied purchases only location quotient method on the study of regional impact of federal procurement (Jensen et al., 1979). Stilwell and Boatwright (1971) suggested the expenditure location quotient to measure interregional trade flows in the United Kingdom (Stillwell and Boatwright 1971, cited in Richardson 1972 p.120). The supply-demand pool method suggested by Schaffer and Chu (1969) based on regional commodity balances, which was first introduced by Isard (cited in Jensenet al. 1979 p.37). The RAS procedure (Stone and Leicester 1966, cited in Jensenet al. 1979 p.33) also has received the most attention in the literature. Smith and Morrison (1974) applied RAS to estimate regional input-output coefficients from national table for the city of Peterborough in the UK (Smith and Morrison 1974, cited in Hewings 1985 p.47).
Another approach based on a mixture of survey and non-survey had been used by Schaffer (1976) and Jensen et al. (1979). In the 1980s, 1990s, regional input-output model have been paid more attention on analysing the regional economic impact and the inter-industries relationship within a region. Most recent research such as Martins (1993) constructed hybrid regional input-output table construction, Bazzazan et al. used semi survey based methods to create regional input-output table in Iran (Bazzazan et al., 2005). Trinh Bui et al. applied hybrid approach to generate an interregional input-output table for Vietnam (Trinh Bui et al., 2005).Spörri et al. constructed regional input-output model based on non-survey method to analysis economic impacts of river rehabilitation (Spörri et al., 2007).
2.3 Environmental Input-Output Models
The input-output model is broadly used in the worldwide; moreover, the input-output model has been extended to analysis environmentally related topics such as environmental pollution, energy consumption and water pollution associated with industrial production. Studies which related the economy to the environment based on the input-output models date back to late 1960s (Vela´zquez, 2006). Cumberland (1966) introduced an input-output model that contains the environmental benefit and costs of industries and final demand categories; he was the first economist to design input-output model that embrace economic and environmental interactions (Cumberland 1966, cited in Victor 1972 p.35 and Richardson 1972 p.215). In 1970, Leontief has extended the input-output model to analyse environmental issues by adding new rows or corresponding columns to accommodate new inputs or outputs originated from production (Leontief, 1986). Victor (1972) offered an extended input-output model for the economy-environment interactions that combines monetary supply and use tables to ‘ecological commodities’.. One of the main purposes of his study is to relate economic behaviour with the associated materials flow. Victor stated that as ecological commodities all material inputs from the environment to the economy and classifies them in terms of the major environmental sections of land, air and water. Likewise, the productions of waste from economic system which returned to the environment were also ecological commodities. The land section both accounted for material and ecosystem inputs and outputs to the economic system (Victor, 1972). Moreover, Victor defined a great deal accounting identities which must embrace for both the economic and the ecological commodities to maintainthe economic ecological system in balance. Bullard and Herendeen (1975) applied a hybrid model on the energy analysis. The model enables “explicit treatment of the flow of energy involve in the flows of goods across regional boundaries” (Bullard and Herendeen, 1975).
In the 1980s, Forsund (1985) undertaken a research concentrated on pollution generation with an extended input-output model. In 1988, Proops utilised the extended input-output model to set up a range of indicators of both direct and indirect energy use(Proops, 1988, cited in Wiedmann et al. 2005). In 1995, Hawdon and Pearson (1995) used 10 sectors input-output model of UK to demonstrate that the input-output model can explore the complicated interrelationships between energy, environment and economic welfare. Chang and Lin (1998) applied input-output structural decomposition to observe emission tendency and consequences of industrial CO2 emission changes in Taiwan during the period of 1981-1991.
More recent applications of environmental input-output analysis include evaluation the effect of the recycling of waste (Nakamura, 1999), estimation of land use changes in China (Hubacek and Sun, 2001), estimation ecological footprints (Lenzen and Murray, 2001), evaluation total impacts of international trade on its energy consumption and CO2 emissions in Brazil (Machado et al., 2001), explore the interdependence of industries with regard to environmental pressure and resource exhaustion (Lenzen, 2003), allocation of ecological footprints to final consumption (Wiedmann et al., 2005), analyses of pollution embodied in international trade (Peters and Hertwich, 2006), analysis of energy requirements and CO2 emission in year 2010 and 2020 in China (Liang, et al. , 2007), examination of long-term scenario on technology, demand and environmental effects (Faber, 2007), examination the environmental impacts of regional consumption activities (Wiedmann et al., 2007).