Business School

1. Business School • Session 7: Kevin Fox • Discussion of: • “Natural Resource and Human Capital as Capital Services and its Contribution to Sustainable Development and Productivity. A KLEMS + N (Natural Capital) Approach” • “The Challenges of Integrating National Accounts and Productivity Accounts in Global India: The Role of the KLEMS Dataset” • IARIW-OECD Conference: "W(h)ither the SNA?" • April 16-17, 2015

2. “The Challenges of Integrating National Accounts and Productivity Accounts in Global India: The Role of the KLEMS Dataset” by Deb Kusum Das • "New Architecture" style of paper for India. • KLEMS Dataset has been produced, collaboration between the Reserve Bank of India and Central Statistical Organisation. • 26 industries, covering the entire economy, 1980-2010 • Synthesis between RBI MFP estimates and CSO National Accounts is proposed.

3. Major challenges. For example: • National accounts does not provide gross output for all sectors (primarily service sectors) • For 7 of 13 manufacturing sectors, GVA needs to be constructed by splitting NAS data. • Labour inputs based on survey run once every five years • Some brave assumptions are needed, but "our final estimates are fully consistent with the aggregate data obtained from the NAS."

4. Comments: • Context considerably different from the U.S., so analogy to the Jorgenson-Landefeld "New Architecture" feels a bit stretched. • A bit like the “tail wagging the dog”. Seems that quite a lot could be done with available NAS data (VA-based TFP?) without going for full KLEMS treatment. • But sometimes external influences required to stimulate useful change.

5. Re Tornqvistindex: “it assumes the existence of perfectly competitive labour markets”. Can use the axiomatic approach to index numbers, or draw on Diewert-Fox (2008, J. Econometrics) results on index numbers with imperfect competition. • Inventories excluded, land included only for agriculture. • Access to data set?

6. “Natural Resource and Human Capital as Capital Services and its Contribution to Sustainable Development and Productivity” by Ariel Coremberg • Proposes “a methodology to measure Natural and Human Capital as wealth and capital services inputs in a symmetric and consistent approach with produced assets (KLEMS+N, capital, labor, materials, services and natural inputs).” • Looks at wealth effects and productivity for oil and gas dependent countries. • Particular attention to evidence of the “Resource Curse”: high wealth during commodity price booms, but “genuine savings” (net of resource depletion) not increasing, endangering future sustainable growth.

7. Proposes including unproved resources as part of wealth. • “The new welfare and growth sustainable asset boundary proposed allowed inclusion of natural and human capital in the core of SNA, responding to the questions of Stiglitz-Sen-Fitoussi about overconsumptin, sustainability of development and productivity.”

8. Human Capital: • Standard Jorgenson-Fraumeni approach • Natural Capital: • Land – crop and pasture areas valued at market price • Subsoil assets – (variant of) the World Bank (2011) approach; present value of future flows of production priced at unit rent

9. Produced Capital as Service Input: • As per the OECD Capital Manual (2009) • Human Capital as Service Input: • BLS (2003) labour composition change index • Natural Capital as Service Input: • Land – user cost for land services (market equivalent rent approach) • Subsoil – “Residual” approach to get rents (Coremberg 2009)

10. Application to Oil and Gas Dependent Countries

12. “KLEMS+N total wealth per capital is 17% higher than World Bank…..The gap is due exclusively because KLEMS+N does not make any cap of 25 years of lifetime subsoil reserves horizons.”

13. Human Capital in Mexico

16. Uses Conference Bureau Total Economy Database for MFP Analysis: • Output: GDP • Labour: quality adjusted • Capital: computer hardware, software, telecommunications equipment, dwellings, buildings and structures, transport equipment, and machinery. NO LAND • Adds in oil and gas capital services (similar to Brandt, Schreyer and Zipperer 2013).

19. Main Conclusions from empirical work • Oil and gas wealth explains most of change of wealth for considered set of countries • Most of the increase in gross saving during boom years was offset by energy depletion. Evidence on the Resource Curse is mixed. • Traditional MFP downwardly biased compared to “Generalized” MFP, as oil and gas services grew more slowly than other (non ICT) capital

20. Comments: • Not really KLEMS: Value added output • Aside: ARKLEMS doesn't seem to be KLEMS either: “Output: Tornquistvolume index of gross value added and value of production by industry at producer prices” (Coremberg 2012, p. 6) • A complex paper with multiple agendas: expansion of national accounts, examination of World Bank data on wealth and saving, proposed changes to World Bank approach to wealth, measurement of TFP using different approaches….

21. User cost equation timing seems slightly wrong: • u(t) = [r(t) + d – ρ(t)]P(t) • More correctly, the end of period user cost is: • u(t) = r(t-1)P(t-1) + dP(t) - ρ(t)P(t-1) • Or u(t) = [r(t-1) - ρ(t) + d(1+ρ(t))]P(t-1)

22. Some methodological tweaks along the way, but I wonder how innovative the approach actually is with respect to MFP: • ABS includes land, this paper doesn’t • ABS has quality adjusted labour • ABS capitalises a significant range of intangibles that are ignored in this paper (e.g. R&D, mineral exploration, artistic originals…)

23. Final notes: • Balancing rates of return? • Access to the original data used? • Draft paper or outline of a book? • Great to see such work that is trying to push the "boundaries", in SNA and in productivity measurement.