PREFERENCES, TECHNOLOGY, TRADE AND REAL INCOME CHANGES IN THE EUROPEAN-UNION - AN INTERCOUNTRY DECOMPOSITION ANALYSIS FOR 1975-1985

This paper refines, develops and applies input-output decomposition an alysis. First, by putting it in an unique intercountry perspective, se cond, by concentrating on explaining income growth, and, third, by sys tematically separating the effects of trade pattern changes from the e ffects of technology and preference changes. The resulting matrix deco mposition formula distinguishes six components, and is applied to a se t of EU-intercountry input-output tables in constant prices, with 25 s ectors and 6 EU-countries, for 1975 and 1985. Macro economic demand gr owth is found to be most important component at the aggregate country level. The other five components relate to the impacts of coefficient changes. Their sizes are smaller, but at the sector level they are qui te large and different between individual sectors and countries. It is concluded that the analysis uncovers a much broader potential impact for national and EU industrial policy measures than the usual less ref ined decomposition analyses.