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Introduction to the SNA, advanced
Lesson 2
Institutional sectors
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1
Background
• In order to collect economic data from businesses, it is
necessary to define the business units to which the data
relate
– an enterprise is the “financing unit “
– an establishment is the “producing unit”
• Can also have units relating to government and households
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Background (cont’d)
• Different types of units interact by engaging in transactions
– 2 units involved in a transaction
– for example, an enterprise selling to a household
• Collectively, the SNA refers to these units as “transactors”
• The SNA allocates transactors to institutional sector based on
their characteristics
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What is an institutional unit?
• The 2008 SNA defines an institutional unit as
an economic entity that is capable, in its own right, of
owning assets, incurring liabilities and engaging in economic
activities and in transactions with other entities
• In practice, this definition includes large businesses,
unincorporated businesses, government units and households
because each of them can own assets and undertake
transactions with other businesses
• Examples include Shell Oil, the small roadside food stall, the
government agency that issues permits for people wishing to
run a taxi service and your own household
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Categories of units
Institutional units can be considered as being one of three broad
types:
(a) corporations, which are businesses established under a
country’s laws,
(b) government, which includes all government activities other
than those in which the unit is producing or selling goods and
services at market prices, and
(c) households, which consist of persons, or groups of persons,
who live together.
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Units and types of activity
• Corporations undertake production and/or accumulation
• General government units may undertake production and/or
consumption and/or accumulation
• All households undertake consumption on their own behalf
• Non-profit institutions (NPIs) are a special type of unit, which
can be part of corporations or of government or they may
serve households
– most NPIs are part of government or serve households
– classifying an NPI to institutional sector depends on who
owns, controls and finances the NPI
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Corporations, general government
• Corporations are businesses that are incorporated in their
country of operation in accordance with the company law in
that country
– they aim to run at a profit
– the owners of an incorporated business have their liability
for losses limited in accordance with company law
– corporations can be either private or public sector
– some unincorporated businesses may be considered to be
corporations (called “quasi-corporations”) if they meet
certain criteria
• Government units are not intended to run at a profit
– activities are financed mainly from tax revenue
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Households
• A household is a group of persons who share the same living
accommodation, who pool some, or all, of their income and
wealth and who consume certain types of goods and services
collectively, mainly housing and food
– there are also other types of households (“institutional
households”) that comprise groups of persons staying in
hospitals, retirement homes, convents, prisons, etc
• Some households run businesses whose accounts are mixed
in with those of the household
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Residence
• The concept of residence is very important in the national
accounts for two reasons
– GDP is defined in terms of the production of all resident
producers
– exports and imports of goods and services are part of the
interaction between a country and other countries (i.e. the
“rest of the world”) and so it is necessary to identify which
transactors belong to which country
• The concept of residence is based on the “centre of
predominant economic interest” of a unit
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Special types of units
• Some large corporations have a complicated structure, with
one or more of head offices, holding companies, subsidiaries
and so-called special purpose entities being examples
• Special purpose entities often have no employees and no
assets
– they include units such as captive financial institutions (i.e.
a unit holding the assets of a corporation), artificial
subsidiaries of corporations (which provide services to the
parent) and special purpose units of general government
(e.g. a unit that borrows funds on behalf of a government)
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Institutional sector classification
• The 2008 SNA classification for institutional sectors actually
defines five institutional sectors for the domestic economy
• There is a sixth (the Rest of the world) for foreign residents
who interact with the transactors resident in the domestic
economy via purchasing exports and by providing imports, or
through financial transactions
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Institutional sector classification (continued)
• The five institutional sectors to which resident units can be
allocated are:
(1) Non-financial corporations (i.e. corporations that are not
classified as “financial corporations”)
(2) Financial corporations
(3) General government
(4) Households
(5) Non-profit institutions serving households (NPISHs)
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Institutional sector classification (continued)
•
Households have also been split into two sectors (households
and NPISHs) at the highest level of the institutional sector
classification
– NPISHs are defined by the SNA as non-market NPIs that
are not controlled by government
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Institutional sub-sectors – Non-financial
corporations
• Each of the five resident institutional sectors contains a finer dissection of
units into sub-sectors
• For the corporations sector, the full classification is:
Non-financial corporations
Non-financial corporations – non-profit institutions (NPIs)
Non-financial corporations – for-profit institutions (FPIs)
Public non-financial corporations
Public non-financial corporations – NPIs
Public non-financial corporations – FPIs
National private non-financial corporations
National private non-financial corporations – NPIs
National private non-financial corporations – FPIs
Foreign controlled non-financial corporations
Foreign controlled non-financial corporations – NPIs
Foreign controlled non-financial corporations – FPIs
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Institutional sub-sectors – Financial
corporations
• Nine sub-sectors are identified within the financial corporations sector:
1. Central bank
2. Deposit-taking corporations, except the central bank
3. Money market funds
4. Non-money market investment funds
5. Other financial intermediaries, except insurance corporations and
pension funds
6. Financial auxiliaries
7. Captive financial institutions and money lenders
8. Insurance corporations
9. Pension funds
• If necessary, each can be further split in the same way as corporations (i.e.
Non-profit institution or For-profit institution; and Public or Private
national or Private foreign-controlled)
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Institutional sub-sectors – Government
• Countries have different systems of government, ranging from
a single level covering the whole country to more complicated
models of national/state/local government
• The 2008 SNA caters for different governmental structures:
o Central government (including Social security funds)
o State government (including Social security funds)
o Local government (including Social security funds)
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Institutional sub-sectors – Government
• An alternative is where social security is at a single level
o Central government
o State government
o Local government
o Social security funds
• If there are less than 3 levels of government then the
redundant level(s) is omitted (e.g. State government)
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Institutional sub-sectors – Households
• Households can be classified into one of four sub-sectors,
with one being further sub-divided into 3 more categories
• Employers
• Own-account workers
• Employees
• Recipients of property and transfer incomes
o Recipients of property income
o Recipients of pensions
o Recipients of other transfers
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Institutional sub-sectors – Households
• Households are allocated to sub-sectors based on which of
the four major categories of income is largest for the
household as a whole
– it may not account for more than half of total household
income
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Institutional sub-sectors – NPISHs
• The SNA provides for NPISHs to be sub-sectored into national
private and foreign-controlled components
• In practice, many countries have difficulty separately
identifying NPISHs to allocate them to a separate NPISH sector
and so they are often included as part of the household sector
• NPISH final expenditures can be classified by function
according to the Classification of the purposes of non-profit
institutions serving households (COPNI)
– COPNI should be applied selectively in each country by
allocating expenditures only to the most important
categories for the country concerned
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References
• System of National Accounts, 2008
• Standard Economic Sector Classifications of Australia (SESCA),
2008
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