The effective formulation and evaluation of developmental policies call for appropriate macroeconomic analytical tools. This is because economy operates as a system of interactions, where industries, households, government and capital across the world are inter-dependent. Thus, policy analyses require models that capture not only partial equilibrium but general equilibrium that takes into account interdependencies among the sectors. Without such models, it will be more challenging to carry out short- and medium-term planning exercises in a systematic and cohesive manner, thus affecting the quality of policies to attain socio-economic objectives of the country.

Input-output analysis is the main tool of applied general equilibrium analysis. It accounts inter-industry relations by showing that the output of one industry becomes an input for another industries, which results in an interlinked economic system. These interdependencies among industries are tabulated in an input-output table. The input-output table provides the main dataset for modeling input-output and its extension including the social accounting matrix (SAM) and computable general equilibrium (CGE).

Principally formulated by Wassily Leontief in the 1930s, input-output analysis is nowadays one of the most active areas of in the field in economics. It has generated much interest among policy makers and policy analysts as a main methodology capable of providing coherent answers to complicated questions in a systematic way. The popularity and prestige of this technique in applied economics have occasionally led to exaggerated optimism about its usefulness to handle any issue.