A CGE Approach to Measuring the Sectoral Contribution to an Economy: An Application to Western Australian Agriculture

Typically, sectoral contribution to an economy is estimated by measures such as shares in gross domestic/regional product, employment and exports. According to these measures, agriculture's contribution declines as the economy grows. However, the indirect contribution of the sector is likely to rise due to the expansion of agriculture–based processing activities in the process of economic growth. Input–output multiplier analysis is often used to capture such flow–on contributions of the sector. This paper proposes to use a computable general equilibrium framework to estimate the direct as well as indirect contributions of agricultural growth in an economy. It also develops a methodology to distinguish the broader effects of agricultural output growth by source — input growth and productivity growth. The proposed methodologies are illustrated by applying these to analyze the contribution of agriculture to the economy of Western Australia, an agriculture and resources based state of Australia. The results for Western Australia suggest that the indirect benefits of agriculture exceed its direct contributions and that the contributions made by enhancing productivity in agriculture are indeed substantial. Importantly, the broader contribution of the agriculture sector depends critically on the specific source of the sectoral growth — input or productivity growth.