Input-Output Approach to Assess the Economic Effects of Final Demand for the Machinery and Equipment Industry

Objective - This study aims to identify Malaysia's machinery and equipment (M&E) industry local supply chain, classify its key industries, and estimate the economic effects of changes in final demand within the industry. Methodology - This study employs a quantitative input–output analysis to assess both the strength and distance of linkages between the machinery and equipment (M&E) industry and other sectors in Malaysia. Industries are classified according to normalized backward and forward linkages, and multiplier analyses are used to evaluate the economic effects of changes in final demand for the M&E industry. Findings - Results indicate that the M&E industry in Malaysia is primarily a backward linkage-oriented sector, stimulating growth in upstream industries through its demand for inputs. The analysis further identifies five key industries, including M&E, within its supply chain. Scenario-based multiplier simulations reveal negative economic impacts from reduced export demand for the M&E industry, but positive impacts from investment in the M&E sector and its related industries. The results also indicate the M&E industry's reliance on external demand. Novelty - This study demonstrates the value of systems thinking by integrating scenario analysis with supply-chain linkages, industrial classifications, and multiplier effects to produce a more comprehensive economic assessment. The approach highlights potential policy insights for improving public resource allocation in Malaysia. Type of Paper - Empirical Keywords: Machinery and Equipment Industry; Input-Output Analysis; Supply Chain JEL Classification: C67, D57, L60 URI: http://gatrenterprise.com/GATRJournals/JBER/vol10.2_5.html DOI: https://doi.org/10.35609/jber.2025.10.2(5)