An input-output analysis: linkages versus leakages

Resorting to input-output analysis, the relationships between production sectors are investigated. For such assessment, the distinction between imported and domestically supplied inputs, which has been disregarded so far in empirical analysis, is crucial. Besides an accurate measurement of domestic linkages, it also allows us to evaluate the importance of international trade in the production process. Moreover, the interaction between domestic linkages and leakages resulting from international trade can also be analysed. The study of such links improves our knowledge on the economic production structure and how it has evolved over time, which is essential for policy making. Using as a case study a small open European economy, the Portuguese one, we assess sectoral interdependence and trade effects for individual sectors as well as for the economy as a whole.