Commodity Modeling and Pricing: Methods for Analyzing Resource Market Behavior

CHAPTER 12

Structural Decomposition Analysis of Changes in Material Demand in the U.S. Economy

Adam Rose and Chia-Yon Chen

INTRODUCTION

The “intensity of use” concept has frequently been applied to the study of mineral and material demand. One group of researchers has examined this ratio of minerals/ materials to gross national product in terms of a single theme. These studies range from Malenbaum’s (1978) simple correlation of intensity of use (IU) with the level of development to the sophisticated analysis of IU in relation to product life cycles by Labys and Waddell (1988) and Labys (2004). Another, larger group of researchers has analyzed mineral/material demand in terms of a “decomposition” of the IU ratio into two or more components, such as input substitution, technological change, and product mix. Advances in this approach have emanated from applications of growth accounting (productivity measurement), input-output analysis, and econometrics. Until the original research summarized in this chapter was begun, there was no comprehensive methodology capable of a consistent estimation of the role that the many hypothesized variables might play in the utilization of materials.

Input-output (I-O)-based structural decomposition analysis (SDA) represents a major advance in this direction. It is defined as a method of distinguishing major shifts within an economy over time by means of comparative static changes in key sets of parameters (Rose and Miernyk 1989). This methodology ...