Download Regional Accounts - United Nations Statistics Division

Viet Vu
Consultant to United Nations’ Statistics Division
15-17 March 2010
Problems to be tackled in the compilation
of regional accounts
 Issue 1: Toward a definition of a regional economy
according to SNA 2008
 Definition of regional economy (a state, province, or district)
and its residents when no international definition has been
proposed
 Recommendations
 Issue 2: Regionalize multi-regional enterprises at data
collection stage:
 Method for imputation in data collection,
 Treatment of multi-regional enterprises and treatment of
national industry.
 Issue 3: Regional GDP compilation
 Regional GDP by estimation/extrapolation
 Evaluation of data requirement by three approaches:
production, income and final expenditure.
 Recommendations.
Problems (continued)
 Issue 4: Annual and quarterly GRP.
 Issue 5: Toward demand approach.
 Issue 6: Toward regional household income.
 Issue 7: Issue of informal activities (other session).
 Issue 8: GRP in constant prices and deflation (other
session).
 Issue 9: Issue of institutional arrangement: centralization
versus decentralization (other session).
ISSUE 1
Toward a definition of a regional
economy on the basis of the
SNA2008
SNA2008 and regional accounts
 SNA2008 has not explicitly discussed nor set standards for
regional accounts.
 However, SNA2008, unlike SNA1993, has redefined the statistical
unit in such a way that any local unit in a region even without
any sale, will be recognized as a production unit (or an
establishment) as long as it incurs costs of production (expenses
on goods and services, wages and salaries and owns fixed
assets).
 The rest of a regional accounts can follow national accounts as
long as one can clearly define and delineate a region, and its
resident units in terms of institutional units, production units,
consumer units within it.
Residents of the national economy or a
regional economy
 Whether a unit is a resident of a location (national or regional
economy) depends on whether it has the predominant economic
interest in it or not.
 A predominant economic interest has the following key features
(SNA2008, para.4.10-4.14):
 Effective economic control of a single government in terms of
rights to ownership (land area, airspace, territorial waters)
and to exploitation (fishing, fuels, minerals).
 Government authority is reflected in registration, license,
lease requirement, tax payment, royalty payment.
 Existence of a location, dwelling, place of production where
production activity takes place for a finite but significantly
long period of time (1 year or over)
Concept of regional economy on the basis of
SNA2008 concept of the national economy
National economy
 Residents of the national
economy: must have a centre of
predominant economic interest in
the national economy.
 Extra-territorial organizations:
Residents outside of national
territory have the national
economy as the predominant
centre of economic interest.
 Multi-national enterprises:
Even not having a branch but have
operating location or payment of
taxes to the country, a segment of
it will be allocated to the country.
Regional economy
 Residents of a regional economy:
must have a centre of predominant
economic interest in the economic
territory of the region.
 Residents of supra-regional territory:
Residents have only the national
economy as the centre of predominant
economic interest; not tied to any
particular region (or regional govnt).
 Multi-establishment enterprises
with registered local units:
 Local units in the region will be
recognized as establishments.
 National industries that have some
operating activities at the regions
(railroad, highway): a region is allocated
only with the part that operate in it.
Compare extra-territorial organizations and
supra-regional units (1)
Extra-territory/extra-territorial
organizations
1.
2.
3.
National air-space, territorial waters and
the continental shelf lying in international
waters over which the country enjoys
exclusive rights;
Territorial enclaves {i.e. geographic
territories situated in the rest of the world
and used, under international treaties or
agreements between States, by general
government agencies of the country
(embassies, consulates, military bases,
scientific bases etc.)};
Deposits of oil, natural gas etc. in
international waters, outside the
continental shelf of the country, worked
by resident units.
Supra-regional territory/ supraregional units
 Similar categories (particularly 1 and 2) can
be defined for supra-regional territory which
include those that do not attach to any
particular region.
1. National air-space, territorial waters and the
continental shelf lying in supra-regional
territory over which only the national
government enjoys exclusive rights and
authority;
2. Deposits of oil, natural gas etc. in over
which the national government has
exclusive rights and authorities, which may
be worked by resident units of any region.
Compare extra-territorial organizations and
supra-regional units (2)
Extra-territory/extra-territorial
organizations
Supra-regional territory/ supraregional units
 Can employ residents of the
 Can employ residents of other
country (such as foreign
embassies employ citizens of the
country)
 Pay compensation of employees
to nationals (treated as
compensations of employees
received from the rest of the
world).
 Buy goods and services in the
country (exports of that
country)
regions of the country.
 Pay compensation of employees to
residents of other regions of the
country.
 Buy goods and services from other
regions of the country.
Implications of SNA rules on regional
economies
 A regional economic territory is generally tied to a
geographical territory but the two are not identical.
 When a unit has predominant centre of interest in the
national economy only, it should be treated as a resident of
a supra-region of the nation.
 This recommendation is consistent with the SNA to set up
a supra-regional territory and supra-regional residents
within a national economy. This is equivalent to extraterritory organizations adopted by the SNA.
 It is also consistent with the SNA to have national
enterprises (or production units) operating across many
regions, similarly to multi-national enterprises.
Recommendations on supra-regional units
– case of Malaysia
 Oil and gas production off-shore or even on shore should
be treated as supra-regional units if ownership reflected in
the ability to negotiate contract of operation, receive
royalties, imposing taxes is with the central government or
a central government-owned enterprises.
 Regional government may receive part of the royalty. This
should be treated as current transfer from the central
government to the state government.
 Advantages of this treatment:
 GDP per capita will be lower, reflecting actual income that residents
of the state has control over.
 Rate of growth will not be dominated by the growth of oil and gas
production when those activities make up a large share of GDP if
included in GDP.
ISSUE 2
Regionalize multi-regional
enterprises at the data collection
stage
Regionalize production activity of multiregional enterprises by SNA2008
SNA1993
 Only local units which have
market output are treated as
establishments.
 Local units that produce
ancillary activities such as
headquarter services,
warehousing, transport, etc. are
not establishments, producing
no output.
 Ancillary units are aggregated to
principal establishments.
 Regional accounts are not
possible
SNA2008
 Local ancillary units can be
treated as establishments.
 Output of ancillary
establishments is measured by
cost.
 Output = intermediate
consumption + compensation of
employees + consumption of
capital + other taxes on
production.
 Regional accounts are possible
Steps to regionalize a multi-regional
enterprise

Step 1: Collect cost of production on ancillary local units, and
output (or information to compile output) of establishments
in the enterprise.


Output of ancillary local units, such as headquarter, warehousing,
repair centers, etc. are calculated by production costs.
Step 2: Allocate the output of ancillary local units as
intermediate consumption to establishments.
Note: allocation can be done only if the link between production
establishments and ancillary establishments in a given
enterprise are well established in a database.
Cost allocation of multi-regional
enterprises with many local units
Example
Old treatment
(1993 SNA)
New treatment
(2008 SNA)
Headquarter
Establishment 1
(principal)
Establishment 2
(secondary)
Establishment 1
(principal)
Establishment 1
(principal)
Establishment 2
(secondary)
Establishment 2
(secondary)
Example of the allocation technique
DATA GIVEN
Establishment 1
SNA1993
Output: 200
IC: 100
VA = 100
GDP = 140
Establishment 2
Output: 100
IC: 30
VA = 70
Headquarter
No revenue/sale
IC: 30
VA = 15
Establishment 1
Establishment 2
Output: 200
IC: 100 + 30
VA = 70
Output: 100
IC: 30
VA = 70
SNA2008 GDP = 140
Establishment 1
Output: 200
IC: 100+30
VA = 70
Establishment 2
Output: 100
IC: 30+15
VA = 55
Establishment 3
Imputed output:45
IC:
30
VA:
15
Some caveats
 Some of the transactions of multiregional units
cannot, strictly speaking, be regionalizable.
 This is the case for most distributive and financial
transactions. Consequently, balancing items of
multiregional units may not be unambiguously
defined at the regional level for multiregional
units.
ISSUE 3
Regional GDP (RGDP) estimation/
extrapolation
Final demand approach?
 Final demand expenditures include:





Final consumption of households and NPISH
Final consumption of government
Gross capital formation
Exports
Imports
 The most difficult issue is to obtain exports and imports of each region.
This is possible only if censuses and regular surveys on commodity
flows through transport surveys between states are implemented.
 Some countries may use location quotients to estimate net
imports depending
 Location quotients are for economic analysis, compilation should be
based on actual statistics, not simply on assumptions.
 It does not seem that any country has used the demand approach to
obtain directly regional GDP (RGDP) at the state levels.
Production or income approach?
 Income approach requires the following information on
enterprises:
 Compensation of employees (COE)
 Profits, depreciation, property and income transfers
 Income approach is possible when most of enterprises are
incorporated so that the data above can be obtained from
enterprise survey. The rest (household unincorporated
enterprises) will be based on production approach
 Draw back: The income approach cannot be applied to get
RGDP by industries as profits cannot be allocated to
establishments. To apply income approach, given COE,
operating surplus may have to be allocated on the basis of shares
of COE.
 Advantage: The RGDP derived from income approach provides
data to cross-check on the reliability of the value derived by the
production approach.
RGDP by production approach
Best approach: bottom-up approach wherever possible
 Obtain information directly by surveying agriculture, mining,
construction, manufacturing and services and by using administrative
data on government activities.
 Use indicators to allocate national aggregates by top-down approach
only for national activities that cross many regions.
Second best approach: apply when production data are
not available or for extrapolation purpose
 Obtain appropriate indicators reflecting constant production growth in
order to extrapolate GDP (or precisely value added) by each economic
activity.
 Revise these preliminary extrapolated GDP by incorporating actual
RGDP data when they are made available.
On what principle regionalization or
extrapolation is based on?
 Production method: Extrapolation of regional GDP must
be production indicators.
 Production indicators are not the same as demand
indicators
 For national economy, production indicators may be the same
as demand indicators if imports and exports are zero
 For regional economy, when demand is significantly supplied
by other regions, demand indicators do not work.
 The best indicators by ranking:
 Quantity output
 Wages and salaries (must be deflated by wage rates)
 Employment (preferably working hours)
 Sale taxes on products (must be deflated by CPI)
On what principle (continued)
 Indicators that can used may vary from country to country
due to:


Data availability as time series
Appropriateness of the data
 Steps to be taken in selecting indicators for
allocation/extrapolation:



Make a list of available data as time series that are relevant to a
specific activity. (Avoid data that are available on ad-hoc basis).
Test the data on past data to see if it can track well the actual
development
Select the best indicators
 GDP and GRP must be based on indicators that are
consistent to one another otherwise GRPs would not add
up to GDP.
ISSUE 4
Regional GDP (RGDP): annual
and quarterly:
 Review of data
 Recommendations
Current status of statistics in the country (N, R)
Census
Annual survey/
administrative
reports
Quarterly,
monthly
surveys
Possible
replacement
indicators
Agriculture
N,R
N,R
N,R
Mining
N,R
N,R
N,R
Employment,
COE, taxes
Construction
N,R
N,R
N,R
Employment,
COE, taxes
Manufacturing
N,R
N,R
N,R
Employment,
COE, taxes
Wholesale/retail
N,R
N,R
N,R
Employment,
COE, taxes
Finance
Central
Bank
Central Bank
Central Bank
Employment,
COE, taxes
Transport
N,R
N,R
N,R
Employment,
COE, taxes
Other services
N,R
N,R
N,R
Employment,
COE, taxes
Current status of statistics on regional
economies – income approach
 Data for corporations: Wages and salaries,
depreciation, profits, etc.
 Income approach can be applied to the corporations
sector.
 Data for general government: Data and the approach
is the same as the production approach
 Data for household unincorporated enterprises: Data
and the approach is the same as the production
approach
Current status of data and recommended
approaches for regional GDP
 The best approach is production approach, given the facts that:
 Production data is more comprehensive
 The desire of policy makers is to have RGDP by industries.
 For the compilation of regular RGDP, a combination of employment
from both Establishment Survey and Labor Force Survey will have to
be used.
 Nonfarm employment in informal activities = Employment from
Labor Force Survey less Employment from Establishment Survey.
 Nonfarm employment in informal activities are used to extrapolate
value added in nonfarm informal activities.
 Conditions to be satisfied: state GDP by industry must
add up to national GDP by industry.
Notes on data estimation (1): agriculture
&crude oil and gas
 State estimates of GDP by industries should as follows:
 Agriculture: Agriculture output and value added are not
proportional to employment (crops may depend on weather and
size of cultivated land. Land yield technique should be applied to
estimate output and value added.
 Oil and gas: Output of crude oil and gas may depend on
government decision on the scale of pumping and prices rather
than employment. Data from government agencies specialized on
oil and gas or private marketing agencies should be the main
sources.
 Pipeline: output or value added may be estimated by share of uses
at the local level
Notes on data estimation (2):
Manufacturing and services
 Employment or compensation of employees can be
used to estimate output and value added.
Notes on data estimation (3): industries not
covered by economic surveys and also without
data on employment
Indicators to be used for allocating national GDP to states
 Fisim: allocated by share of loans and deposits.
 Life insurance: allocated by shares of premiums paid.
 Nonlife insurance: allocated by shares of premiums paid.
If data are not available, alternative indicators such as the
number of cars registered (for car insurance), number of
dwellings (for residential building insurance), etc. may be
used
 Owner-occupied housing services: share of population
with housing weighted by relative indicators of wealth (for
which per capita income is a proxy).
Notes on data estimation (4): use of employment
in Labor Force survey and adjust informal
employment for lower productivity
 In case that employment in the industry is available from both Labor





Force Survey (LFS) and Economic survey (ES) (covering only
incorporated units in the list frame), the difference is considered
employment in the informal sector.
LFS is household based survey. ES is registered establishment based
survey.
Employment in the informal sector will be converted to ES labor
equivalents by adjusting for their lower productivity.
The adjustment ratio = (output/labor ratio in ES)/(output/labor ration
in very small enterprises in ES).
Adjusted employment equivalent = ES employment + ES labor
equivalents in informal sector.
This adjusted employment will be used to extrapolate regional
constant value added. This is also adjusted for productivity growth of
the industry. (Method of extrapolation will be discussed next).
Method of extrapolation to guarantee state GDP
by industry to add up to national figure
 Problem: Using employment to estimate/extrapolate output assumes
labor has the same productivity. Estimates are done separately for each
region. This must be adjusted so that the sum of regional GDP is equal
to the national GDP for each individual industry.
 Steps to be taken:
1.
2.
3.
4.
Obtain preliminary regional industry GDP by extrapolating regional
industry GDP of the previous year with the rate of growth of regional
employment equivalent in the industry or other indicators.
Calculate the national productivity index of the industry of the
nation by dividing national industry GDP to the sum of preliminary
industry GDP over all regions.
Assume that change in regional productivity index is the same as
change in the national productivity index for every industry.
Adjust the preliminary state industry GDP in step 2 by multiplying it
with the productivity index obtained in step 3.
 Note: the method only works if the regional GDP by industry totals to
the national GDP by industry.
Formulas for extrapolation
Example of extrapolation
GDP in manufacturing - national
GDP national
Period 1
Period 2
Growth index
100
120
1.20
Employment in manufacturing/GDP preliminary estimates
GDP in
period 1
AdEmpl. AdEmpl.
Period 1 Period 2
AdEmpl.
growth index
Preliminary
GDP estimates
State 1
70
120
130
1.08
75.8
State 2
30
80
90
1.13
33.7
200
220
1.10
109.6
National 100
Adjusted estimate for period 2
Period 1
Period 2 (Adjust)
State 1
70
75.8*1.095
83.0
State 2
30
33.7*1.095
37.0
National
100
120.0
Productivity
index for
agriculture:
120/109.6=1.095
ISSUE 5: toward demand approach(1)
 GRP = (HH+NPISH) final consumption + G final consumption +
Gross capital formation + Net exports
 Demand approach may not be possible, but if a country wishes to have it,
the following surveys/ administrative data are needed:
 Household expenditure survey and retail trade survey at the regional
levels to estimate and extrapolate HH final consumption;
 Government final expenditure of central and regional government at
regional levels;
 Capital expenditure survey at regional levels.
 Net exports will be derived as a residual given GRP is known from
production approach.
 Even though the demand approach is unable to independently cross
check the reliability of the supply approach, it will provide important data
such as final consumption expenditure and gross capital formation at the
state levels.
ISSUE 5: toward demand approach(2)
 Another approach to derive net exports is location theory,
assuming that if a state produces less than the national average
for a particular industry, it must import from other states.
 Location theory is based on location quotient calculated by using
employment.
 Location quotient = (Employment in state i in industry j/Total
employment in state )/(Employment in the nation in industry
j)/Total employment in the nation).
 If location quotient of industry i is less than 1, the state must
import output of i from other states. The location quotient is also
called regional purchase coefficient. The import coefficient is (1regional purchase coefficient).
Issue 6: Toward regional household income
 Regional household income is conceptually the same as national
income. It is the income accrued to the households that can be
used for final consumption or saving. The latter is used for
investment in fixed assets or financial assets.
 Regional household income (or more precisely household
income in the region) is equal to:
 Compensation of employees
 Operating surplus of unincorporated household enterprises
 Property income receivable less property income payable
 Current transfers receivable less current transfers payable
(including taxes)
 For poverty assessment, entrepreneurial household income may
be used instead of household income. Property income payable
will not be deducted.
Thank you