There are a number of limitations in using the basic/non-basic approach.
• The model is better used for larger areas such as regions, counties, provinces, and states, and more difficult to apply to smaller communities;
• The line between basic and non-basic can be difficult to determine. Many businesses are a combination of both;
• The model relates to traditional industries such as agriculture and manufacturing and is not really meant to recognize the service industry
As a result, input/output analyses are developed to look at impacts in local communities. An input/output analysis considers inter-industry relations in an economy, clearly demonstrating how the output of one industry goes to another industry where it serves as an input; this then makes one industry dependent on another as both a customer of output and as a supplier of inputs. Models are created by surveying all of the industrial sectors in larger states or regional economies about their total sales and purchases. That information goes into a matrix, or table of numbers, that relates the outputs of all industrial sectors (sales to consumers and industry, and exports) to the inputs to those industries (all the goods, services, labor, etc. that the industries must purchase in order to generate the outputs.) In a balanced system, total outputs equal total inputs.
Survey data is painstakingly collected over the years from all the industrial sectors of the regional economy, including everything from livestock, fisheries, and forestry to construction, freight, postal services, industrial machines, and so on. This data is then entered into the matrix. Thus, if a community has a large film sector, production of that sector is modeled as it has a “ripple effect” through suppliers and other sectors of the economy. The input/output model allows one to see the changes in the economy.