1. Introduction

1.1 This study was undertaken during most of 1999 for Comhairle Nan Eilean Siar in collaboration with Western Isles Enterprise, Highlands and Islands Enterprise and The Royal Bank of Scotland (together, the sponsors). Dr Deborah Roberts of the Macaulay Land Use Research Institute, Aberdeen directed the work, with survey management by Mr Pat Snowdon of the Department of Agriculture, University of Aberdeen and drafting advice and assistance from Professor Kenneth Thomson of the same Department. Dr Steve Brand of the University of Plymouth developed the computer software for in-house use. The study was monitored by a steering group appointed by the sponsors, and that group was advised by a technical advisor, Professor Iain McNicoll of the University of Strathclyde.

1.2 The study had the following principal objectives (study brief, September 1998):

· "To construct (in a manner consistent with recognised I-O [input-output] accounting conventions and formats) a comprehensive set of up-to-date regional accounts for the Western Isles in the form of an I-O table

· To compile a Western Isles occupational employment-by-industry matrix compatible with the core I-O table

· [By] utilisation of relevant I-O data and systems, to undertake a number of analyses relating to the structure and performance of the Western Isles economy

· To provide the project sponsors with an operational model 'package' of the Western Isles economy for in-house use."

1.3 A previous I-O study of the Western Isles (Scottish Office Industry Department, 1990) by the Fraser of Allander Institute involved a combination of household, industry and organisational surveys and the construction of a 19-sector I-O table for 1988-89 delineating 7 categories of final demand and 2 primary inputs. While providing a possible basis of comparison with a new I-O table and for changes since 1988-89, there have been significant changes in the economic structure in the region over the last 10 years. Moreover, the present study has adopted a somewhat different and broader methodological approach (see below, and Chapter 2), including data from a special survey of tourists to the Western Isles in summer 1999.

1.4 Two I-O studies similar to the present exercise have been carried out more recently, also by the Fraser of Allander Institute, for the Orkney Islands (McGregor et al., March 1998) and the Shetlands Islands (Gillespie et al., April 1999), containing I-O tables for 1995 and 1996/97 respectively. Other recent non-IO studies have generated estimates of Western Isles GRDP (e.g. ERM, 1998, Mackay Consultants, 1998). Although there are obvious differences between the economic structure and problems of all three island groups, the results of the present study have been compared with the Orkney and Shetland figures where appropriate.

1.5 The present study has adopted a Social Accounting Matrix (SAM) approach which has become increasingly common in economic literature. While containing the usual I-O inter-industry and external "trade" linkages, the SAM presents more comprehensively the flows of incomes and expenditures around the regional economy. This is done through the explicit inclusion of several types of income and household accounts, and by increasing the level of detail relating to transfer payments to and from government accounts.

1.6 The advantage of this approach is its economy-wide focus. The accounts are fully articulated, reflecting the full range of economic transactions that take place within the economy, and ensuring consistency between estimates relating to production, consumption, trade flows and the level of transfer payments.

1.7 Through the construction and utilisation of SAM-based methods of regional economic accounts, the study provides an up-to-date, comprehensive picture of the nature of the Western Isles economy. The accounts are as comprehensive and detailed as possible given resource and data constraints, with key local sectors separately identified within the accounting system.

1.8 Within the remit of the study, the accounts are used in three ways:

· to generate standard performance indicators for the Western Isles, including regional GDP, per capita personal income, and balance of trade estimates;

· to derive sectoral output, income and employment multipliers showing the extent of economic interdependencies within the economy and to identify key local sectors and household groups; and

· to analyse a number of base-year impact scenarios to be specified by the project sponsors.

Structure of the report

1.9 Chapter 2 (Methodology) of the report describes the basic structure of the 1997 accounting framework and the way it has been adapted to highlight household and distributional issues as well as production interdependencies in the economy. A great deal of new local data was collected and utilised in the construction process. Chapter 2 also describes the survey components of the study and introduces the final balanced accounts and employment matrix. Technical details of the construction process are confined as far as possible to appendices.

1.10 Chapter 3 (Core Regional Analysis) presents standard economic performance indicators for the region including Gross Regional Domestic Product (GRDP) and Gross Regional Domestic Expenditure (GRDE). Using the findings of other studies, the economic performance of the Western Isles is compared with that of other regions, and the discussion highlights how the structure of the economy has changed over time.

1.11 Chapter 4 (Multiplier Analysis) reports and discusses the results of using the SAM to produce "multipliers" which measure the internal linkages within the Western Isles economy. These multipliers measure the effect on incomes and employment of external "impacts" such as a change in "export" demand.

1.12 Chapter 5 (Scenario Analysis) describes and analyses a number of "scenarios" agreed with the sponsors. Each scenario represents a economic or social development, or "shock", whose effect on the Western Isles is considered to be of particular interest.