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Some conceptual difficulties regarding ‘net’ multipliers

Abstract

Multipliers are routinely used for impact evaluation of private projects and public policies at the national and subnational levels. Oosterhaven and Stelder (J Reg Sci 42(3), 533–543, 2002) correctly pointed out the misuse of standard ‘gross’ multipliers and proposed the concept of ‘net’ multiplier as a solution to this bad practice. We prove their proposal is not well founded. We do so by showing that supporting theorems are faulty in enunciation and demonstration. The proofs are flawed due to an analytical error, but the theorems themselves cannot be salvaged as generic, non-curiosum counterexamples demonstrate. We also provide a general analytical framework for multipliers and, using it, we show that standard ‘gross’ multipliers are all that are needed within the interindustry model since they follow the causal logic of the economic model, are well-defined and independent of exogenous shocks, and are interpretable as predictors for change.

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Notes

  1. 1.

    We will focus on so-called type I multipliers. Similar considerations would apply to type II multipliers but we omit any references to them for the sake of brevity.

  2. 2.

    Since prices are independent of quantities in the model, aggregation entails using reference prices which are kept hidden because they play no explicit role and are set to unity using the standard normalisation.

  3. 3.

    If we could distinguish between value and actual physical data, the same conservation of value property would hold but in that case we would need to introduce non-unitary prices explicitly. With the implicit normalisation developments are simpler and clearer.

  4. 4.

    Pathological counterexamples can sometimes be avoided by strengthening the set of assumptions in the initial statement, giving rise, in these cases, to a stronger mathematical proposition. Non-pathological counterexamples, however, are harder to crack since they usually indicate a serious logical or reasoning flaw.

  5. 5.

    Although the idea is of course contained in Oosterhaven and Stelder (2002), the first explicit reference to OS ‘net’ multipliers as compensators for double counting is in De Mesnard (2007a).

References

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  2. De Mesnard L (2007a) A critical comment on Oosterhaven-Stelder net multipliers. Ann Reg Sci 41:249–271

  3. De Mesnard L (2007b) Reply to Oosterhaven: the net multiplier is a new key sector indicator. Ann Reg Sci 41:285–296

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Acknowledgments

Support from research projects MICINN-ECO2009-11857 and SGR2009-578 is gratefully acknowledged. Clarifying comments by L. Alsedà and thorough discussions with A. Manresa are very much appreciated. Suggestions from the referees have improved the submittedt draft of this paper. The usual caveat applies.

Author information

Correspondence to Ferran Sancho.

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Sancho, F. Some conceptual difficulties regarding ‘net’ multipliers. Ann Reg Sci 51, 537–552 (2013). https://doi.org/10.1007/s00168-012-0542-0

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JEL Classification

  • C67
  • D57
  • 022
  • R15