Investigating the potential contribution of intermediate inputs on welfare with the input-output method: a case study of Khuzestan province

Document Type : Research Paper

Authors

1 Associate Professor of Economics, Department of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran

2 Assistant Professor of Economics, Department of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran

3 Professor of Economics, Department of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran

4 Assistant Professor of Sociology, Department of Sociology, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran

Abstract

Purpose: One of the shortcomings of the value-added method in welfare estimation is that it only measures the final products without intermediate productions in a given province or outside that province and ignores the interaction of economic sectors in the province. Khuzestan Province ranks second in the country in terms of GDP, but most of its production is related to sectors such as oil, steel, petrochemicals, which are not converted into final products. Regarding agriculture, the products are mainly exported out of the province. Indeed, the production in this province has not been able to bring prosperity to all the citizens of there. Therefore, it should be carefully investigated to see why, even though the province has the second rank in creating added value, the feeling of well-being in this province is much lower than even the average of the country. This research seeks to analyze the entry and exit of intermediate goods by using the output data table, whether the province can increase the welfare by completing the value chain, and its potentials. In the following, we will first discuss whether GDP can be the basis for measuring well-being and when this added value can bring more well-being.
 Methodology: The corresponding calculations are performed using the regional input-output table of Khuzestan Province in 2016. Then, the interactions of the economic sectors of the province together and with the sectors outside the province are analyzed.
Findings and Discussion: The results of the research show that, if all the export intermediate inputs are converted into final production and all the imported inputs are produced in the province, the added value of the entire province will increase by 63%. At the level of economic sectors, the added value of the industry sector will increase by 194%, the service sector by 102% and the agricultural sector by 74%. Also, considering the size of the link between the domestic economic sectors of the province, if the supply chain of intermediate goods is completed within the province, it can increase the GDP of the province by 37.8%.
Conclusions and Policy Implications: In order for the size of the gross domestic product (per capita income) of the province to be a good index of welfare, the following items must be measured or adjusted:
Non-tradable goods and services produced in the measurement of GDP
The items that are not imported
The spillover effects of production, such as the social, economic, health and medical, environmental, and security issues pertaining to the GDP.
A part of the added value created, such as the payment to the labor force or investors, belonging to owners outside the province
The accumulation of physical capital over many years that can create prosperity for the citizens (Apart from the annual production that is included in the GDP, this important item should be considered in measuring the prosperity of the citizens.)
Rial value units of government investment (This item cannot be a good measure of well-being.)
The distribution of the GDP among the population groups (It is a determinant of the welfare of households. The more equitable the distribution is, the higher the welfare of households.)
Many non-economic variables that affect the well-being of citizens such as security, respect, human and social capital, social relations, and social acceptance of norms
Therefore, based on the results, a part of the production of Khuzestan Province, which leads to a relative increase in added value compared to the other provinces, cannot bring prosperity to the province due to national effects. Based on the considerations raised here, the results of the current research can lead to a rise in the GDP of the province only if good links are established among the internal economic sectors of the province and the supply chain of intermediate goods are formed there. By examining the above seven cases, GDP can be made a more accurate measure of well-being.

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Main Subjects

References

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The Journal of Economic Policy
Volume 18, Issue 35
April 2026
Pages 310-339

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