Other assumptions, including perfectly elastic supply and price-inelastic final demands, result in overestimated multiplier effects. The three previously mentioned assumptions (proportionality, constant returns, and no substitution), are also limitations because they violate basic economic theory. Social accounting models (discussed later) further decompose economic interdependencies among institutions, factors of production, and activities. In addition, the income and consumption portions of the model have been partitioned to estimate interrelational income multipliers that account for the distribution of income among different groups. In response, an alternative, “Type II” multiplier, which endogenizes consumption effects, has been developed. The basic IO framework, however, fails to incorporate household consumption. At the regional level, salaries and consumer spending, rather than interindustry linkages, may have the greatest impact on the economy. Notwithstanding its utility, the input–output model has some shortcomings. In addition to the basic data required for regional input–output analysis, some estimate of the interregional distribution of interindustry transactions and final demand must be obtained. A multiregional input–output (MRIO) table partitions transactions into intraregional and interregional economic activity.

The regional input–output framework can be extended to a multiregional context in order to account for linkages between different locations, as well as different sectors of the economy. The IO model is typically used by simulating exogenous changes to final demand and using multipliers to estimate resulting impacts. For the economy as a whole, total output must equal total outlays. The row sum of interindustry sales and final demand comprises an industry's total output the column sum of intermediate inputs, salaries, imports, and other value-added components equals total outlays. Final demand is composed of household consumption, government spending, investment, and exports. The portion of the table with values in boldface type identifies interindustry transactions these are linkages among firms in the different industries that make up the regional economy. Rows of the table correspond to sales from a given sector to all sectors of the regional economy columns represent purchases of intermediate inputs, labor, etc. The regional IO table is essentially a double-entry accounting system. Table I offers an example of a regional input–output table. Input–output analysis requires regional accounts that capture the transactions among the different sectors of the economy for a given period of time (typically 1 year).

Kubota input output model