Estimation of GDP from the expenditure side

Estimation of GDP Estimation of GDP from the expenditure sidefrom the expenditure side

Workshop on National Accounts Workshop on National Accounts for Asian for Asian Member States of the Organization of Islamic Member States of the Organization of Islamic

ConferenceConference

Ankara, 1-2 December 2008Ankara, 1-2 December 2008

UN Statistics DivisionUN Statistics Division

Expenditure components of GDPExpenditure components of GDP

Lecture outline:Lecture outline: For each expenditure categoryFor each expenditure category

ScopeScope Specific issuesSpecific issues MeasurementMeasurement Data sourcesData sources

Expenditure components of GDPExpenditure components of GDP Household final consumptionHousehold final consumption Government final consumptionGovernment final consumption Changes in inventoriesChanges in inventories Gross fixed capital formationGross fixed capital formation Acquisition less disposals of valuablesAcquisition less disposals of valuables Exports and importsExports and imports

Expenditure components of GDP – Sectors involvedExpenditure components of GDP – Sectors involved

HouseholdHousehold Household final consumptionHousehold final consumption Gross fixed capital formationGross fixed capital formation Changes in inventoriesChanges in inventories Acquisition less disposals of valuablesAcquisition less disposals of valuables

GovernmentGovernment Government final consumptionGovernment final consumption Gross fixed capital formationGross fixed capital formation Changes in inventoriesChanges in inventories Acquisition less disposals of valuablesAcquisition less disposals of valuables

CorporationsCorporations Gross fixed capital formationGross fixed capital formation Changes in inventoriesChanges in inventories Acquisition less disposals of valuablesAcquisition less disposals of valuables

NPISHNPISH Consumption NPISHConsumption NPISH Gross fixed capital formationGross fixed capital formation Changes in inventoriesChanges in inventories Acquisition less disposals of valuablesAcquisition less disposals of valuables

ROWROW Imports and exportsImports and exports

What is consumption?What is consumption?

Expenditure?Expenditure? through payment or through incurrence of a through payment or through incurrence of a liabilityliability Monetary and non-monetaryMonetary and non-monetary (barter, own account)(barter, own account) some transfers in kind deemed transfers in some transfers in kind deemed transfers in cash cash (e.g. international relief goods, social (e.g. international relief goods, social transfers in kind)transfers in kind)

Acquisition?Acquisition? Expenditure, Expenditure, plusplus all other transfers in kindall other transfers in kind

Use?Use? Actual consumption:Actual consumption: All acquisitions, All acquisitions, plusplus (for households) (for households) Individual consumption of government and Individual consumption of government and NPISHNPISH

Accounting RulesAccounting Rules

ValuationValuation Purchaser price:Purchaser price:The purchaser's price is the amount paid by The purchaser's price is the amount paid by the purchaser, excluding any deductible VAT the purchaser, excluding any deductible VAT or similar deductible tax, in order to take or similar deductible tax, in order to take delivery of a unit of a good or service at the delivery of a unit of a good or service at the time and place required by the time and place required by the purchaser. The purchaser's price of a good purchaser. The purchaser's price of a good includes any transport charges paid includes any transport charges paid separately by the purchaser to take delivery separately by the purchaser to take delivery at the required time and placeat the required time and place..

TimingTiming AccrualAccrual

Household final consumptionHousehold final consumption

Scope:Scope:• Purchase of goods and servicesPurchase of goods and services• Own account production of goodsOwn account production of goods• Owner occupied dwellingsOwner occupied dwellings• Services produced by paid domestic staffServices produced by paid domestic staff• Compensation of employees in kindCompensation of employees in kind• Expenditures on financial intermediation servicesExpenditures on financial intermediation services• Services insurance and pension fundsServices insurance and pension funds• Certain licenses and feesCertain licenses and fees

Household final consumptionHousehold final consumptionHousehold as consumerHousehold as consumer

Each household is a consumerEach household is a consumer

Some households are also producersSome households are also producers• Households with an unincorporated enterpriseHouseholds with an unincorporated enterprise• Household that live in their own home (owner Household that live in their own home (owner

occupied dwellings)occupied dwellings)

Expenditures on goods and services by Expenditures on goods and services by households as households as producersproducers are either are either intermediate consumptionintermediate consumption or or fixed capital fixed capital formationformation


ResidencyResidency Household final consumption expenditureHousehold final consumption expenditure Some households are also producersSome households are also producers

• IncludesIncludes: expenditures of residents abroad: expenditures of residents abroad• ExcludesExcludes: expenditures of non-residents: expenditures of non-residents

Specific issuesSpecific issues Free services provided by employerFree services provided by employer Goods produced by household for own consumptionGoods produced by household for own consumption Purchase of services from other householdPurchase of services from other household Distinction between wages in kind and intermediate Distinction between wages in kind and intermediate

consumption by employersconsumption by employers


Data sources:Data sources: Household budget surveysHousehold budget surveys Retail trade statisticsRetail trade statistics Administrative dataAdministrative data Production dataProduction data Foreign trade data (cif to purchaser price)Foreign trade data (cif to purchaser price)

Compilation methodsCompilation methods Direct observationsDirect observations Benchmark to indicator methodBenchmark to indicator method Commodity flow methodCommodity flow method


Validation of estimates:Validation of estimates: Growth ratesGrowth rates Correlation with development in disposable Correlation with development in disposable

income, wages and salariesincome, wages and salaries Comparison of implicit deflator with CPIComparison of implicit deflator with CPI Development of saving ratioDevelopment of saving ratio Comparison of composition of consumption Comparison of composition of consumption

over timeover time

Government final consumptionGovernment final consumptionScope:Scope: Government agencies (usually defined by law)Government agencies (usually defined by law) PlusPlus NPIs mainly controlled and financed by government NPIs mainly controlled and financed by government

unitsunits

What does government produce?What does government produce? Non-market outputNon-market output

• General administrationGeneral administration• Specific services for general population (e.g. foreign policy)Specific services for general population (e.g. foreign policy)• Individual services (e.g. education and health services)Individual services (e.g. education and health services)

Market outputMarket output (usually small) (usually small)

Government final consumptionGovernment final consumption

How is the Government output measured?How is the Government output measured? Non-market producer in general Non-market producer in general output valuation on cost basisoutput valuation on cost basis Thus the Thus the output output is the sum ofis the sum of

• Compensation of employeesCompensation of employees• Intermediate consumptionIntermediate consumption• Consumption of fixed capitalConsumption of fixed capital• Other taxes on productionOther taxes on production


Who uses government non-market output?Who uses government non-market output?

Expenditure approach: Expenditure approach: GovernmentGovernment

Actual consumption:Actual consumption:• General administration and services for the General administration and services for the

population as a whole population as a whole GovernmentGovernment• Individual government servicesIndividual government services HouseholdHousehold


MeasurementMeasurement

Government final consumptionGovernment final consumption= = Total outputTotal output- Goods and services sold on the market- Goods and services sold on the market+ Goods and services purchased to be provided free to the + Goods and services purchased to be provided free to the

populationpopulation

ValuationValuationNo product taxes No product taxes on government outputon government output

Thus for government;Thus for government;Consumption equals non-market outputConsumption equals non-market output


EstimationEstimation

Most common sourcesMost common sources Government accountsGovernment accounts

Main estimation processMain estimation process Adjustment for time of recordingAdjustment for time of recording ReclassificationsReclassifications Competing coverage Competing coverage (e.g. local government, extra budgetary units)(e.g. local government, extra budgetary units)

Consumption of NPISHsConsumption of NPISHs

What are non-profit institutions serving householdsWhat are non-profit institutions serving households

NPIS are legal or social entities NPIS are legal or social entities Created for the purpose of producing goods and services Created for the purpose of producing goods and services Can not be a source of income, profit or gains for the Can not be a source of income, profit or gains for the

units that establish, control or finance them. units that establish, control or finance them. Articles of association prevents sharing benefits by Articles of association prevents sharing benefits by

owners of NPIsowners of NPIs Serving householdsServing households

Examples:Examples:• Cultural institutions Cultural institutions • Philanthropic InstitutionsPhilanthropic Institutions• Religious InstitutionsReligious Institutions• Charitable InstitutionsCharitable Institutions• Political partiesPolitical parties• Sports clubsSports clubs• Other recreational organizationsOther recreational organizations


What do NPISHs produce?What do NPISHs produce?

Generally:Generally: Goods and services provided for freeGoods and services provided for free to householdsto householdsPossibly:Possibly: Small scale market Goods and servicesSmall scale market Goods and services

Examples of Goods and services provided for freeExamples of Goods and services provided for free Charity (e.g. free food for the poor)Charity (e.g. free food for the poor) Religious events and counseling political representationReligious events and counseling political representation Meeting facilitiesMeeting facilities Consumer supportConsumer support Health servicesHealth services Vocational training Vocational training


How is the NPISHs output measured?How is the NPISHs output measured? Non-market producer in general Non-market producer in general output valuation on cost basisoutput valuation on cost basis Thus the Thus the output output is the sum ofis the sum of

• Compensation of employeesCompensation of employees• Intermediate consumptionIntermediate consumption• Consumption of fixed capitalConsumption of fixed capital• Other taxes on productionOther taxes on production


Who uses non-market output of NPISHs?Who uses non-market output of NPISHs? Expenditure approach: Expenditure approach: NPISHs themselveNPISHs themselve

Actual consumption: Actual consumption: HouseholdsHouseholds

Measurement and valuationMeasurement and valuation Consumption NPISH = Total output - Output soldConsumption NPISH = Total output - Output sold

General assumption in 1993 SNA: NPISHs do not pay taxes on their General assumption in 1993 SNA: NPISHs do not pay taxes on their outputoutput

Thus for NPISHs Thus for NPISHs Consumption equals OutputConsumption equals Output (non-market) (non-market)


Data sourcesData sources

Census/surveys of NPISHsCensus/surveys of NPISHs

Household budget surveysHousehold budget surveys

Administrative records (e.g. umbrella Administrative records (e.g. umbrella organizations)organizations)

Changes in inventoriesChanges in inventories

Four types of inventoriesFour types of inventories

Finished goodsFinished goods Goods to be used in the production processGoods to be used in the production process Goods for resaleGoods for resale Work-in-progressWork-in-progress (e.g. buildings under construction, crops in the field, livestock (e.g. buildings under construction, crops in the field, livestock

for production while maturing, fruit trees while growing)for production while maturing, fruit trees while growing)


ValuationValuationMain concern:Main concern: Avoiding including holding gains Avoiding including holding gains

and losses in the value of transactionsand losses in the value of transactionsThus:Thus: Goods:Goods:

• Additions to inventoriesAdditions to inventories: at prices prevailing at the time : at prices prevailing at the time of their entryof their entry

• Withdrawals from inventoriesWithdrawals from inventories: at prices prevailing at the : at prices prevailing at the time of withdrawaltime of withdrawal

Work-in-progress:Work-in-progress:• Additions to inventoriesAdditions to inventories: at prices prevailing at the time : at prices prevailing at the time

of their entry or costs plus mark upof their entry or costs plus mark up• Withdrawals from inventoriesWithdrawals from inventories: at prices prevailing at the : at prices prevailing at the

time of withdrawal or costs plus mark up.time of withdrawal or costs plus mark up.


Data SourcesData Sources Business surveysBusiness surveys

Administrative data on stocks held by Administrative data on stocks held by government entitiesgovernment entities

Agricultural surveysAgricultural surveys

Building permitsBuilding permits

Capital FormationCapital Formation

What are they? DefinitionWhat are they? Definition Usually goods but also servicesUsually goods but also services That are ownedThat are owned From which owner expects future From which owner expects future

economic benefits over a period of time by economic benefits over a period of time by using it or holding it (asset boundary)using it or holding it (asset boundary)

That will be used for more than one yearThat will be used for more than one year

Fixed Capital FormationFixed Capital Formation

What are they? ScopeWhat are they? Scope They includeThey include

• New capital goodsNew capital goods

• Existing capital goodsExisting capital goods

• Improvements to existing capital goodsImprovements to existing capital goods

They can beThey can be • PurchasedPurchased• Self-producedSelf-produced

Fixed Capital Formation – Main TypesFixed Capital Formation – Main Types Fixed assetsFixed assets

• DwellingsDwellings• Other buildings and structures including land improvementsOther buildings and structures including land improvements

Machinery and equipmentMachinery and equipment• Transport equipmentTransport equipment• ICT equipmentICT equipment• Other machinery and equipmentOther machinery and equipment

Weapon systemsWeapon systems Cultivated biological resourcesCultivated biological resources

• Animal resources yielding repeat products.Animal resources yielding repeat products.• Tree, crop and plant resources yielding repeat productsTree, crop and plant resources yielding repeat products

Costs of ownership transfer on non-produced assets Costs of ownership transfer on non-produced assets Intellectual property productsIntellectual property products

• Research and development Research and development • Mineral exploration and evaluation Mineral exploration and evaluation • Computer software and databasesComputer software and databases

Entertainment, literary or artistic originals Entertainment, literary or artistic originals Other intellectual property productsOther intellectual property products


ValuationValuation Market pricesMarket prices Cost plus mark-upCost plus mark-up Discounted future benefitsDiscounted future benefits

Time of recordingTime of recording Change of ownershipChange of ownership When construction takes place under a When construction takes place under a

contract of sale agreed in advance the contract of sale agreed in advance the ownership of the structure is effectively ownership of the structure is effectively transferred in stages as the work proceedstransferred in stages as the work proceeds


Data sourcesData sources GeneralGeneral

• Surveys and censuses users and producersSurveys and censuses users and producers• Foreign trade statisticsForeign trade statistics

Construction, machinery and equipmentConstruction, machinery and equipment• Survey of investorsSurvey of investors• Survey of construction company and other producersSurvey of construction company and other producers• Administrative data (e.g. building permits)Administrative data (e.g. building permits)• Foreign trade statisticsForeign trade statistics

Livestock, timber etc.Livestock, timber etc.• Agricultural censuses and surveysAgricultural censuses and surveys• Administrative dataAdministrative data

ValuablesValuables

What are they? DefinitionWhat are they? Definition

Valuables are assets that:Valuables are assets that:• Are acquired as store of wealthAre acquired as store of wealth• Are not used up in productionAre not used up in production• Do not deteriorate over timeDo not deteriorate over time

Examples:Examples:• Precious stones and metalsPrecious stones and metals• AntiquesAntiques• Works of artsWorks of arts• JewelleryJewellery

Data sources:Data sources: Household surveysHousehold surveys Retail trade surveys Retail trade surveys Surveys and censuses of producersSurveys and censuses of producers

Exports and ImportsExports and Imports

Scope:Scope:Besides general cases of imports and Besides general cases of imports and

exports, this also includes:exports, this also includes:• Barter transactionBarter transaction• giftsgifts• Shuttle tradeShuttle trade• Goods for processingGoods for processing• Construction servicesConstruction services• Installation servicesInstallation services• Financial servicesFinancial services• Trade and transport servicesTrade and transport services• Transactions with extra territorial enclavesTransactions with extra territorial enclaves

Exports and ImportsExports and Imports

Sources:Sources: Foreign trade statisticsForeign trade statistics

Problems:Problems: Time of recordingTime of recording CoverageCoverage Currency denominationCurrency denomination

Balance of payments statisticsBalance of payments statisticsProblems:Problems:

Lack of detailsLack of details coveragecoverage Currency denominationCurrency denomination

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Estimation of GDP from the expenditure side