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Estimation of Gross Value Added by Economic Activity

Estimation of Gross Value Added by Economic Activity. Enterprise, Establishment and Industry. Enterprise – a unit in an institutional sector engaged in production Establishment - a production unit defined by location and homogenous product, enterprise or a sub-unit of enterprise

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Estimation of Gross Value Added by Economic Activity

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  1. Estimation of Gross Value Added by Economic Activity UNSIAP_AC

  2. Enterprise, Establishment and Industry • Enterprise – a unit in an institutional sector engaged in production • Establishment - a production unit defined by location and homogenous product, enterprise or a sub-unit of enterprise • Industry - group of establishments engaged in same economic activity or producing same commodities • International Standard Industrial Classification of all Economic Activities (ISIC) UNSIAP_AC

  3. Activities of Establishment • Primary activity - production activity with highest share in output or gross value added • Secondary activity - other production activities • Ancillary activity - activity whose output is for internal use of the establishment or enterprise UNSIAP_AC

  4. Types of Output • Goods • Tangible • Transferable (ownership change) • Can be stored • Service • Intangible • Non transferable • Produced as delivered UNSIAP_AC

  5. Intangible produced Intermediate input Produced fixed R Financial R Value added Natural R government Human R Output T-S Sale CFC Good & Services from Production OS COMP Change in inventory OUTPUT goods and services Own final use Production UNSIAP_AC

  6. How to Measure Gross Output (GO) • Physical output- product of volume(unit) and price(value per unit) • Disposition - sum of all outflow of output • Input cost - sum of all cost in production UNSIAP_AC

  7. How to Measure Gross output (Contd.) • Physical Output: the gross output (GO) is GO = quantity *unit price e.g. • GO = Kg fish* average price per kg • GO = number of tourist nights * average room rate per night P Q UNSIAP_AC

  8. How to Measure Gross output (Contd.) • Disposition GO = Sales + Change in inventory + Own final use Change in inventory = closing–opening inventory or entry + withdrawal + normal losses Own final use = own production for final consumption + own capital formation UNSIAP_AC

  9. How to Measure Gross output (Contd.) • Input cost GO = intermediate consumption + compensation + taxes net of subsidies on production/product + consumption of fixed capital + net operating surplus/ mixed income UNSIAP_AC

  10. What are these terms? Quantity - the number, or volume of the goods produced or number of units of services provided Price - the value of a unit of good or service provided depending upon the tax paid by producer factor price ( no tax) basic price ( production tax only) producer price ( tax on product paid by producer, not invoiced to buyer) UNSIAP_AC

  11. What are these terms? (Contd.) Sales - Sale of goods and services for cash,credit, or barter. Change in inventory - addition/reduction to inventory of finished goods, goods in process, or goods for resale (closing inventory - opening inventory) Own final use - goods and services used for own final consumption and own capital formation UNSIAP_AC

  12. What are these terms? (Contd.)Cost of Production Intermediate input/consumption - goods and services purchased by producers and • used as part of production • consumed during production • paid for by producer UNSIAP_AC

  13. What are these terms? (Contd.)Cost of Production Intermediate input/consumption - Examples: seeds, fertilizers, raw materials, fuel, electricity, water, chemicals, packing material, transport charges, accounting / business services, food material in restaurants, linens in hotels, wrapper in retail trade, insurance services charge, etc UNSIAP_AC

  14. What are these terms? (Contd.)Cost of production Compensation - • wages, salaries, commissions and other benefits to employees or workers for their labour input • includes social security or provident fund contribution of employer for the employees • maybe paid in cash or kind UNSIAP_AC

  15. What are these terms? (Contd.)Cost of production Compensation (example) • salaries of employees • wages of construction workers • bonus, tips of waiters in restaurants • clothing allowance given to employees • food allowance, • housing benefit, • gasoline allowance, etc.. UNSIAP_AC

  16. What are these terms? (Contd.)Cost of production Consumption of fixed capital • the value of the replacement cost of fixed assets used for production/ • value of services of fixed asset in production; the asset is revalued every accounting period • consumption of fixed capital is estimated on the revalued asset; accounting entry because fixed assets are owned by producers. UNSIAP_AC

  17. What are these terms? (Contd.)Cost of production Taxes are transfer to government ( something for nothing) Subsidies are transfer of government to producers ( something for nothing) considered as negative taxes UNSIAP_AC

  18. What are these terms? (Contd.)Types of Taxes • Taxes on production • Imposed on producers and users because of production • Taxes on income and wealth • Taxes on institutional units or persons on income received or assets owned • Taxes on capital • Taxes on capitaltransactions which are not on regular basis UNSIAP_AC

  19. What are these terms? (Contd.)Taxes on Production • Taxes on product • Taxes imposed on finished product or service delivered • E.g: excise tax, sales tax, value added tax, service tax, import duties, export tax, etc. • Other taxes on production • Taxes imposed on inputs or other factors of production used in production • E.g: land tax, building tax, road tax, license to operate, etc. UNSIAP_AC

  20. What are these terms? (Contd.)Subsidies Subsidies are negative taxes granted by the government to: reduce /stabilize the price maintain production maintain returns to factors of production UNSIAP_AC

  21. What are these terms? (Contd.)Other Cost of Production Operating surplus - the balance or residual when all the costs are deducted from the value of goods and services produced Mixed income - the balance or residual in household enterprise; combination of compensation and operating surplus UNSIAP_AC

  22. What are these terms? (Contd.)Operating surplus • Includes incomes for the use of assets (produced, non produced, financial) owned by producer • Includes incomes due to assets of other institutions put at the disposal of producers by other institutions UNSIAP_AC

  23. What are these terms? (Contd.)Mixed Income • Balance or residual in cost of production of household own account enterprise • Includes compensation and operating surplus of household own account enterprise • Includes imputed compensation of unpaid family workers engaged in the household enterprise production UNSIAP_AC

  24. Where to apply these? • Market goods and services,use: • physical output multiplied by price • disposition • cost with operating surplus • Non market goods and services, use • input cost without operating surplus • generally applied for general government units and non profit institutions serving households UNSIAP_AC

  25. Where to apply these? (Contd.) • Market goods and services GO = quantity * unit price GO = sale + change in inventory + own final use GO = Intermediate input +compensation + taxes net of subsidies + consumption of fixed capital + operating surplus UNSIAP_AC

  26. Where to apply these? (Contd.) • Non market goods and services, use GO = intermediate input + compensation + taxes net of subsidies + consumption of fixed capital UNSIAP_AC

  27. Valuation/Measurement of Output UNSIAP_AC

  28. Valuation of Output Output has different valuations based on taxes net of subsidies included in the price of the product: factor price = price without any tax GO(factor price) = IC + COMP + CFC + Net Operating Surplus UNSIAP_AC

  29. Valuation of Output (Contd.) basic price = price which includes the value of other taxes on production GO (at basic price) = IC + COMP+ CFC + other taxes net of subsidies on production + net operating surplus UNSIAP_AC

  30. Valuation of Output (Contd.) producers price = price which includes taxes net of subsidies on production and on products which are paid by producers themselves GO = IC + COMP+ CFC + T-S (on production and products) + net operating surplus UNSIAP_AC

  31. Measurement of Market and Non Market Output • Market goods and services, • physical output multiplied by producer or basic price • disposition • cost with operating surplus UNSIAP_AC

  32. Measurement of Market and Non Market Output • Non market goods and services • cost without operating surplus (output of general government, NPISH) UNSIAP_AC

  33. How to treat output of special industries? • Cultivated assets GO = Sale + change in inventory + own final use Example- Cultivated forest Trees were planted and expected to be cut for sale after 4 years. The following are the estimated value of opening, closing inventory, intermediate consumption and sale 700 sale during the year 1991 1992 1993 1990 0 100 250 400 100 90 30 70 UNSIAP_AC

  34. Cultivated forest • GO = Sale + change in inventory+own final use 700 1993 1992 1990 1991 0 100 250 400 0 30 70 90 100 1990 1991 1992 1993 Closing stock 100 250 400 0 Less opening stock - 0 -100 -250 -400 = change in inventory 100 150 150 -400 + Sales 0 0 0 700 + own final use 0 0 0 0 = GO 100 150 150 300 - II/IC 30 70 90 100 = GVA 70 80 60 200 UNSIAP_AC

  35. Trade The services provided for making the goods available to the purchasers • GO = Sale - cost of goods sold • Cost of goods sold = purchases of goods for resale + opening stock of goods for resale - closing stock of goods for resale • GO = sale + closing inventory - opening inventory - purchases of goods for resale UNSIAP_AC

  36. Trade Example: A retail store in 2003 recorded the following transactions: sale = 50,000 purchases of goods for sale = 30,000 opening stock = 4,000 closing stock= 5,000 utilities = 200 supplies = 500 other services paid =50 GO = 50,000 + (5000-4000) -30,000 = 21,000 GVA = 21,000 - ( 200+500+50) = 21,000 - 750 = 20,250 UNSIAP_AC

  37. Banks GO = service charges and other receipt from services + FISIM FISIM ( financial intermediation services indirectly measured) =Value of services integrated in the computation of interest on deposit and loans. Imputed service charge = Interest received on loans - interest paid on deposits UNSIAP_AC

  38. Banks FISIM: On Loans = (actual - pure) interest rate On Deposits = (pure -actual) interest rate BANKS 6 % = pure interest rate - FISIM 15% = interest rate plus FISIM HOUSEHOLD CORPORATION 10% (pure interest rate) UNSIAP_AC

  39. FISIM Example: household deposited 500 mil and bank lent out 300 mil if the reference rate is 10 % what is the FISIM of bank? FISIM rate on deposit = 10% - 6% = 4 percent FISIM ON DEPOSIT = 500(0.04) = 20 mil FISIM rate on loan = 15% - 10 = 5 percent FISIM ON LOAN = 300(0.05) = 15 mil There are other deviations in the estimate of FISIM depending upon the availability or choice of reference rate and the data UNSIAP_AC

  40. Other special industries: • Insurance Non life or term insurance GO = premium payable + supplemental premium - claims Life insurance - GO = premium payable + supplemental premium - claims - change in actuarial reserve UNSIAP_AC

  41. Gross Value Added UNSIAP_AC

  42. Estimation of Gross Value Added • Direct estimation GVAt = GOt - IIt GOt = the value of gross output at period t IIt = the value of all the intermediate input used in production UNSIAP_AC

  43. Estimation of Gross Value Added Indirect Estimation • GVAt = GOt* gvar • GOt = value of gross output • gvar = gross value added ratio = GVA/GO UNSIAP_AC

  44. Estimation of Gross Value Added Indirect Estimation • GVAt = GOt-1*GOE – IIt-1* IIe • GVA= gross value added at t • GO t-1 = gross value of output at t-1 • GOE = gross output extrapolator ( data from survey, proxy statistics, other output value indicator - GO t/Got-1) • IIt-1 = intermediate input at t-1 • II e = intermediate input extrapolator ( data on major input, other data on input – II t /II t-1) UNSIAP_AC

  45. Estimation of Gross Value Added Indirect Estimation GVAt = GVAt-1* GOt/ Got-1 = GVAt-1* gross output value extrapolator Assumption: production technology does not change GVA = GVAt-1 * II t /II t-1 =GVAt-1 * Intermediate input extrapolator Assumption: production technology does not change major intermediate input growth is the same as that of the output UNSIAP_AC

  46. Valuation of GVA • GVA at factor cost • Value of GVA without any taxes or subsidies • GVA at basic price • Value of GVA with other taxes/subsidies on production • GVA at producers price • Value of GVA with other taxes/subsidies on production and taxes/subsidies on product paid by producers • GVA at purchasers price • Value of GVA with all taxes on production/product UNSIAP_AC

  47. Estimation of GDP from GVAVAT.xls • GDP by Production GDP at basic price =  GVA at basic price  GVA = the sum of the GVA’s of all the different industries GDP at producers price  GVA ( at basic price) + taxes-subsidies on product paid by producers GDP at purchasers or market price  GVA (at basic price) + taxes-subsidies on product UNSIAP_AC

  48. Data Sources for Compilation of GDP by Production UNSIAP_AC

  49. Data Sources for Compilation • Censuses and Survey • Economic Census • Establishment Survey • Agriculture Survey • Other special surveys • Employment surveys UNSIAP_AC

  50. Data Sources for Compilation • Administrative by Product • Government finance statistics • Taxes collected on various industries • Report of ministries • Financial statement of companies • Other by product of administrative function • School enrollment • Other statistics collected as by-product of administrative functions • Building construction permits UNSIAP_AC

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