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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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enterprise establishment and industry
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

activities of establishment
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

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

UNSIAP_AC

slide5

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

how to measure gross output go
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

how to measure gross output contd
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

how to measure gross output contd1
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

how to measure gross output contd2
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

what are these terms
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

what are these terms contd
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

what are these terms contd cost of production
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

what are these terms contd cost of production1
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

what are these terms contd cost of production2
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

what are these terms contd cost of production3
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

what are these terms contd cost of production4
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

what are these terms contd cost of production5
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

what are these terms contd types of taxes
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

what are these terms contd taxes on production
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

what are these terms contd subsidies
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

what are these terms contd other cost of production
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

what are these terms contd operating surplus
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

what are these terms contd mixed income
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

where to apply these
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

where to apply these contd
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

where to apply these contd1
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

valuation of output
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

valuation of output contd
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

valuation of output contd1
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

measurement of market and non market output
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

measurement of market and non market output1
Measurement of Market and Non Market Output
  • Non market goods and services
    • cost without operating surplus

(output of general government, NPISH)

UNSIAP_AC

how to treat output of special industries
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

cultivated forest
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

slide35

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

slide36

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

slide37

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

slide38

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

slide39

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

other special industries
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

estimation of gross value added
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

estimation of gross value added1
Estimation of Gross Value Added

Indirect Estimation

  • GVAt = GOt* gvar
      • GOt = value of gross output
      • gvar = gross value added ratio

= GVA/GO

UNSIAP_AC

estimation of gross value added2
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

estimation of gross value added3
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

valuation of gva
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

estimation of gdp from gva vat xls
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

data sources for compilation
Data Sources for Compilation
  • Censuses and Survey
      • Economic Census
      • Establishment Survey
      • Agriculture Survey
      • Other special surveys
      • Employment surveys

UNSIAP_AC

data sources for compilation1
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

data sources for compilation2
Data Sources for Compilation
  • Special Studies
      • Cost of production studies
      • Studies on new industries
      • Other special studies
  • Other sources
      • Expert opinion
      • Special research
      • Newspaper clippings

UNSIAP_AC

interpretation of the table
Interpretation of the table
  • The purchasers price of goods used for intermediate input is equal to the basic price
  • The total of value added tax from the various flows is equal to the sum of non deductible taxes
  • Sum of GVA at basic price = 700
  • VAT = 70
  • GVA at basic price + VAT = 770
  • Value of final demand (PCE)=770

UNSIAP_AC

estimate of gdp from io matrix
Estimate of GDP from IO matrix

GDP by production by economic activity

GDP = GVA = (GO-II)agri + (GO-II)ind + (GO-II)serv

=(130-30) + (200-70) +(120-42)

= 100 +130 +78 = 308

GDP by expenditure

GDP = FC + CF + X-M = 109 + 75 +124 = 308

GDP by Income

GDP = comp + T-S + GOS = 117+36+155 = 308

UNSIAP_AC

what are the problems compiling gdp by production
What are the problems compiling GDP by production?
  • Non availability of data for estimation
    • subsistence agriculture
    • large establishments
  • Lack of support from management
  • Inadequate knowledge on some industries
  • Lack of confidence in estimation
  • Not enough personnel
  • Pressure to get the perceived estimates of officials.

UNSIAP_AC

how does production affect money flows
How does production affect money flows?
  • Only monetary transactions affect the flow of money.
  • Subsistence production or production for own use does not affect money flows
  • barter transactions such as payment of wages in kind does not affect money flows
  • Transactions through credit will not affect money flows at the time of transactions but will be recorded in financial flows

UNSIAP_AC