# Mathematical background¶

This section gives a general overview about the mathematical background of Input-Output calculations. For a full detail account of this matter please see Miller and Blair 2009

Generally, mathematical routines implemented in pymrio follow the equations described below. If, however, a more efficient mechanism was available this was preferred. This was generally the case when numpy broadcasting was available for a specific operation, resulting in a substantial speed up of the calculations. In these cases the original formula remains as comment in the source code.

## Basic MRIO calculations¶

MRIO tables describe the global inter-industries flows within and across countries for \(k\) countries with a transaction matrix \(Z\):

Each submatrix on the main diagonal (\(Z_{i,i}\)) represents the domestic interactions for each industry \(n\). The off diagonal matrices (\(Z_{i,j}\)) describe the trade from region \(i\) to region \(j\) (with \(i, j = 1, \ldots, k\)) for each industry. Accordingly, global final demand can be represented by

with final demand satisfied by domestic production in the main diagonal (\(Y_{i,i}\)) and direct import to final demand from country \(i\) to \(j\) by \(Y_{i,j}\).

The global economy can thus be described by:

with \(e\) representing the summation vector (column vector with 1’s of appropriate dimension) and \(x\) the total industry output.

The direct requirement matrix \(A\) is given by multiplication of \(Z\) with the diagonalised and inverted industry output \(x\):

Based on the linear economy assumption of the IO model and the classic Leontief demand-style modeling (see Leontief 1970), total industry output \(x\) can be calculated for any arbitrary vector of final demand \(y\) by multiplying with the total requirement matrix (Leontief matrix) \(L\).

with \(\mathrm{I}\) defined as the identity matrix with the size of \(A\).

The global multi regional IO system can be extended with various factors of production \(f_{h,i}\). These can represent among others value added, employment and social factors (\(h\), with \(h = 1, \ldots, r\)) per country. The row vectors of factors can be summarised in a factor of production matrix \(F\):

with the factor of production coefficients \(S\) given by

Multipliers (total, direct and indirect, requirement factors for one unit of output) are then obtained by

Total requirements (footprints in case of environmental requirements) for any given final demand vector \(y\) are then given by

Setting the domestically satisfied final demand \(Y_{i,i}\) to zero (\(Y_{t} = Y - Y_{i,j}\; |\; i = j\)) allows to calculate the factor of production occurring abroad (embodied in imports)

The factors of production occurring domestically to satisfy final demand in other countries is given by:

with the hat indicating diagonalization of the resulting column-vector of the term underneath.

If the factor of production represent required environmental impacts, these can also occur during the final use phase. In that case \(F_Y\) describe the impacts associated with final demand (e.g. household emissions).

These need to be added to the total production- and consumption-based accounts to obtain the total impacts per country. Production-based accounts (direct territorial requirements) per region i are therefore given by summing over the stressors per sector (0 … m) plus the stressors occurring due to the final consumption for all final demand categories (0 … w) of that region.

Similarly, total requirements (footprints in case of environmental requirements) per region i are given by summing the detailed footprint accounts and adding the aggregated final demand stressors.

Internally, the summation are implemented with the group-by functionality provided by the pandas package.

## Aggregation¶

For the aggregation of the MRIO system the matrix \(B_k\) defines the aggregation matrix for regions and \(B_n\) the aggregation matrix for sectors.

With \(w\) and \(x\) defining the aggregated number of countries and sectors, respectively. Entries \(b\) are set to 1 if the sector/country of the column belong to the aggregated sector/region in the corresponding row and zero otherwise. The complete aggregation matrix \(B\) is given by the Kronecker product \(\otimes\) of \(B_k\) and \(B_n\):

This effectively arranges the sector aggregation matrix \(B_n\) as defined by the region aggregation matrix \(B_k\). Thus, for each 0 entry in \(B_k\) a block \(B_n * 0\) is inserted in \(B\) and each 1 corresponds to \(B_n * 1\) in \(B\).

The aggregated IO system can then be obtained by

and

with \(\mathrm{I}\) defined as the identity matrix with the size equal to the number of final demand categories per country.

Factors of production are aggregated by

and final demand impacts by