SOCIAL ACCOUNTING MATRICES AND THEIR USE IN ECONOMICS MODELLING

1. SOCIAL ACCOUNTING MATRICES AND THEIR USE IN ECONOMICS MODELLING Finn Tarp Department of Economics University of Copenhagen http://www.econ.ku.dk/ftarp/ Workshop at CIEM, Hanoi, 16 January 2009

2. Outline • Introduction • SAM: an overview from a macro perspective • SAM: going back to the micro foundations • Vietnam SAMs • Conclusion

3. SAM from a macro perspective • Overview – the basic idea • The individual cells • Macroeconomic accounting identities in a SAM context

4. Simple Open Economy Real SAM

5. Social Accounting Matrices (SAMs) Additional variables Sh= Private Savings

6. Social Accounting Matrices (SAMs) Additional variables Sg = Government Savings

7. Social Accounting Matrices (SAMs) Additional variables T = Tax Payments

8. Social Accounting Matrices (SAMs) Additional variables Sf = Foreign Savings

9. Social Accounting Matrices (SAMs) Additional variables G = Government Spending

10. Social Accounting Matrices (SAMs) Accounting Identities: Mat. Bal. Y + Z = C + G + I + X

11. Social Accounting Matrices (SAMs) Accounting Identities: Income C + T + Sh = Y

12. Social Accounting Matrices (SAMs) Accounting Identities: Govt. Budget G + Sg = T

13. Social Accounting Matrices (SAMs) Accounting Identities: Saving-Investment I = Sh + Sg + Sf

14. Social Accounting Matrices (SAMs) Accounting Identities: Trade Balance X + Sf = Z

15. Back to the microfoundations - Input-output: a three sector economy • Input-output concept simple. Consider the production of the ith sector. • We may isolate (1) flows xij from that industry to other industries; (2) the quantity of that production that goes to final demand, ci, and (3) total output, xi. • Put in a transactions tableau • or

16. The Leontief coefficients • Leontief, the innovator of input-output analysis, uses a special production function which • depends linearly on the total output variables xi. Using Leontief coefficients aij, we may • manipulate our transactions information into what is known as an input-output table: • : • or

17. Next step • Rewriting finally yields

18. One more step Introducing matrix notation, we can see how a solution may be obtained. Let • denote the total output vector, the final demand vector, the unit matrix and the input-output matrix, respectively.

19. Key result

20. Input-output analysis: discussion • No supply constraints • No substitution (input coefficients are constant) (marginal input coefficients = average) – what happens in the growth process? • External economies are ruled out, constant returns to scale assumed • If sectoral linkages weak, the IO is of limited value • What about the optimal choice of technique? -> Linear programming … • What about feedback effects from income-expenditure behaviour etc.? -> SAM modelling …

21. The next step: Why Build SAMs? • Macro policy and IO production structure relations are important • But so is wider economic structure and economic interactions between sectors and institutions of the economy, on the one hand, and between the domestic economy and the rest of the world (ROW), on the other • We want to understand these interactions to formulate appropriate policy recommendations - we need a framework (or accounting device) in which to organize our structural and institutional data

22. What is a SAM? • A Social Accounting Matrix (SAM) is a square matrix that builds on the input-output table - but the SAM goes further • A SAM considers not only production linkages, but tracks income-expenditure feedbacks (institutions are introduced) • Each “transactor” (such as factors of production, households, enterprises, the government and the ROW) has a row and a column – double entry national income accounting (row totals therefore equal to corresponding column total) • A SAM is a consistent data system that provides a snapshot of the economy in a given year • Note that the SAM reconciles data from different sources and we often talk about the SAM as consisting of two corresponding layers: the Macro-SAM and the Micro-SAM

23. What is a Macroeconomic SAM? • The Macro-SAM is the upper (aggregate) layer of the SAM • Try to visualize (open a door and look into an office or library) • Technically: the Macroeconomic SAM is an extension (or matrix representation) of basic national income identities: • Y + M = C + G + I + E (GNP) • C + T + Sh = Y (Income) • G + Sg = T (Govt. Budget) • I = Sh + Sg + Sf (Savings-Investment) • E + Sf = M (Trade Balance)

24. Schematic Macroeconomic SAM

25. Generic Macro-SAM

26. What is a Microeconomic SAM? • The Micro-SAM is the lower (disaggregated) layer of the SAM • Try to visualize (being inside an office or library - look around) • Technically: each of the 81 (=9x9) cells in the macro-SAM are disaggregated so as to capture detailed interdependencies between institutions and sectors

27. Additional remarks • SAMs are an economy-wide accounting device that captures the many interdependencies among sectors and institutions in the economy • As such SAMs are useful in their own right through inspection – descriptive analyses of the structure of the economy (at various levels of aggregation!) • And the SAMs become the basis for detailed multiplier analyses that go well beyond traditional input-output multiplier analysis • Finally, the SAMs form the informational basis for the building and calibration of (applied) computable general equilibrium (CGE) models. • CGE models are important analytical tools for policy support. They take explicit account of the importance of price-mediated resource allocation, the hallmark of a market economy – used to analyse issues such as the distribution of the benefits of growth and economic reform, including increased international economic integration

28. Multiplier Analysis • The SAM accounts can give detailed information about direct and indirect income and expenditure linkages in the economy. For the economywide SAM, one uses the basic multiplier calculation M= (I – A)-1 where M is the square matrix of multipliers for exogenous demand changes on endogenous accounts, and A is the coefficients (expenditure) matrix of endogenous accounts (note: mij = income multiplier for i arising from j)

29. Multisectoral models: the SAM (Ghatak Table 11.1)

30. Multisectoral models: Separating the accounts (Ghatak Table 11.2)

31. The SAM multiplier (Ghatak Table 11.3 first part)

32. The SAM multiplier (Ghatak Table 11.3 second part)

33. SAM multipliers - discussion • Fixed coefficients, no substitution • No supply constraints, demand driven (fixed price response to exogenous change) • To capture substitution in supply and demand and price adjustments -> CGE (but beyond scope here....)

34. Introduction - Vietnam • Institutional background and acknowledgments • The CIEM-NIAS project • CIEM-DoE research collaboration • GSO, Danida etc. • The 1999 and the first 2000 Vietnam Social Accounting Matrices (SAMs) (published in 2001 and 2002) • Some economic analyses carried out • A reference to the international conference on “Vietnam’s international economic integration - Opportunities and challenges" held in March 2004 • http://eurasia.nias.ku.dk/ciemnias • http://www.ciem.org.vn • SAM revision and updating an ongoing process CIEM Seminar, Hanoi 28 October 2004

35. Why Build SAMs? A recap • Macro policy is important • But so is economic structure and economic interactions betweens sectors and institutions of the economy, on the one hand, and between Vietnam and the rest of the world (ROW), on the other • We want to understand these interactions to formulate appropriate policy recommendations - we need a framework (or accounting device) in which to organize our structural and institutional data CIEM Seminar, Hanoi 28 October 2004

36. Table 3.1: Dimensions of the SAM

37. The New 2000 Vietnam Micro-SAM - An Overview • In sum, a 269x269 matrix • 112/114 domestic production activities/commodities • 14 factors of production • 16 household types • 3 types of enterprises (private, public, and foreign) • 1 state • 7 taxes • 1 consolidated capital (investment/savings) account • 1 balance of payments (with details on 194 international trading partners for the 114 commodities) CIEM Seminar, Hanoi 28 October 2004

38. Factors Rural Urban Male Female Male Female M. Skilled M. Skilled Unskilled Unskilled M. Skilled Unskilled M. Skilled Unskilled Skilled Skilled Skilled Skilled Labour Force Disaggregation 12 labour categories: CIEM Seminar, Hanoi 28 October 2004

39. Household Rural Urban Male Male Female Female Self-empl. farmers Self-empl. farmers Wage-earners Wage-earners Self-empl non-farmer Self-empl non-farmer Non-employed Non-employed Household Disaggregation 16 types: CIEM Seminar, Hanoi 28 October 2004

40. Tax disaggregation (7 categories) • Value added tax (VAT) • Production tax (PTAX) • Special consumption sales tax (STAX) • Import tariffs (TARIFF) • Factor taxes (FTAX) (divided into land and capital factor taxes) • Enterprise taxes (ETAX) • Household taxes (HTAX) CIEM Seminar, Hanoi 28 October 2004

41. On 2003 Vietnam SAM:Construction & Description • SAM Construction Methodology • Unbalanced Macro SAM (Primary Data Sources) • Balanced Macro SAM (Statistical Balancing) • Unbalanced Micro SAM (Primary Data & Macro SAM Totals) • Balanced Micro SAM (Statistical Balancing) • 2003 Vietnam SAM accounts (274) • Goods Accounts: Activities (112), Commodities (112), Trade Margins (3) & Transportation Margins (3) • Factor Accounts: Land (1), Labor (12) & Capital (1) • Institutional Current Accounts: Enterprises (1), Households (16), Government (7) & Rest of World (1) • Institutional Capital Accounts: Private (2), Government (2) & Aggregate (1)

42. Final Remarks (1) • SAMs are an economy-wide accounting device that captures the many interdependencies among sectors and institutions in the economy • As such SAMs are useful in their own right through inspection – descriptive analyses of the structure of the economy (at various levels of aggregation!) • And the SAMs become the basis for detailed multiplier analyses that go well beyond traditional input-output multiplier analysis CIEM Seminar, Hanoi 28 October 2004

43. Final Remarks (2) • Finally, the SAMs form the informational basis for the building and calibration of (applied) computable general equilibrium (CGE) models. • CGE models are important analytical tools for policy support. They take explicit account of the importance of price-mediated resource allocation, the hallmark of a market economy, and are therefore well suited to analyse issues such as the distribution of the benefits of growth and economic reform, including increased international economic integration • A word on future SAM work, f.ex. • General updating, VHLSS and new national accounts • SME and household surveys • Regionalization • Environmental issues CIEM Seminar, Hanoi 28 October 2004

44. Conclusions • Is planning a good idea? • How has planning been imlemented in the past? • What role for planning in the future? • What is the role of SAMs?