The Development of a Measure of Intersectoral Connectedness by Using Structural Path Analysis

Abstract

In this study we analyze the changes that take place in intersectoral linkages in the process of diversification, and the roles of sectors in such changes. Data from input—output and structural path analysis are utilized to develop indices that can be used for assessing the connectedness of sectors (and industries within sectors) in any economy. In addition, measures are developed for quantifying linkages, and the economic influence transmitted by them, that are sensitive to structural change over space and time. The indices are then used to examine the relationship between sectoral diversity, linkages, and development by analyzing the economic relationships between sectors in the form of intersectoral linkages of six planning districts in Virginia, in addition to the economies of the State of Virginia and the USA. On the basis of these analyses, it is concluded that: (a) contrary to Hirschman's suggestion that the complexity of linkages increased with industrial diversification, the results suggest that diversification leads to less complexity in the linkage relationships; and (b) economies with mixed sectoral representation have higher levels of cycling, on average, than those with industrial diversity in just one sector. The implications of these findings for policy and planning are discussed.