While Leontief's system makes the driving demand force (consumption) endogenous, Ghosh's system makes the driving supply force (value-added) endogenous (Guerra & Sancho, 2010). In a context wehere resource are increasingly scarce, can anyone explain me why would we consider Ghosh's system outdated (aside from the argument that traditional markets dead end work as per Leontief's system)?
Dear Goeffrey,
The difference seems to be ideological. One is taking the demand side point of view, while the other is taking the supply side point of view. There is a third approach also available from the ideological standpoint, that is, the model of Piero Sraffa. None of them are outdated, but ideological bias tends to make them so.
Thank you Lall B. Ramrattan . I will definitely have a look on P. Sraffa's work. Actually, the "hidden question" is: would Ghosh model be more accurate to monitor our global natural resource management (e.g. to develop material circularity measurement tools)? And is there any author addressing this question or am I completely mistaken?
Dear Geoffrey,
Here are my two cents:
1. In both Leontief and Ghosh models the output vector is the endogenous variable, not final demand nor value-added.
2. In Leontief 's model, the exogenous variable is final demand and it is assumed that supply (labor, natural resources, etc.) constrains will not bind to any level of final demand. On the other hand, in Ghosh's model, the exogenous variable is value added (quantities or factor prices) and it is assumed that demand adjusts to any supply level.
3. The parameters differ as well in both models: in Leontief's model it is assumed that input requirements are proportional to output levels whereas in Ghosh's model it is assumed that sells of intermediate demand commodities are proportional to output levels.
With these elements, I think that more than ideology and independently of the other available models, it depends on the research question and what we think about the adequacy of the model to describe the economy: even though "resource[s] are increasingly scarce", are they binding constraints (given the research question) or more relevant than demand constraints? Which proportionality assumption makes more sense to the economy we are studying?
Best,
Daniel
You could take a look at: de Mesnard, L., 2009, “Is the Ghosh model interesting?”, Journal of Regional Science, 49, 2: 361-372.
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