Estimation of GDP from the expenditure side

1. Estimation of GDP from the expenditure side Workshop on National Accounts for Asian Member States of the Organization of Islamic Conference Ankara, 1-2 December 2008 UN Statistics Division

2. Expenditure components of GDP Lecture outline: For each expenditure category • Scope • Specific issues • Measurement • Data sources Expenditure components of GDP • Household final consumption • Government final consumption • Changes in inventories • Gross fixed capital formation • Acquisition less disposals of valuables • Exports and imports

3. Expenditure components of GDP – Sectors involved

4. What is consumption?

5. Accounting Rules

6. Household final consumption • Scope: • Purchase of goods and services • Own account production of goods • Owner occupied dwellings • Services produced by paid domestic staff • Compensation of employees in kind • Expenditures on financial intermediation services • Services insurance and pension funds • Certain licenses and fees

7. Household final consumptionHousehold as consumer • Each household is a consumer • Some households are also producers • Households with an unincorporated enterprise • Household that live in their own home (owner occupied dwellings) • Expenditures on goods and services by households as producers are either intermediate consumption or fixed capital formation

8. Household final consumption Residency • Household final consumption expenditure • Some households are also producers • Includes: expenditures of residents abroad • Excludes: expenditures of non-residents Specific issues • Free services provided by employer • Goods produced by household for own consumption • Purchase of services from other household • Distinction between wages in kind and intermediate consumption by employers

9. Household final consumption Data sources: • Household budget surveys • Retail trade statistics • Administrative data • Production data • Foreign trade data (cif to purchaser price) Compilation methods • Direct observations • Benchmark to indicator method • Commodity flow method

10. Household final consumption Validation of estimates: • Growth rates • Correlation with development in disposable income, wages and salaries • Comparison of implicit deflator with CPI • Development of saving ratio • Comparison of composition of consumption over time

11. Government final consumption Scope: Government agencies (usually defined by law) Plus NPIs mainly controlled and financed by government units What does government produce? • Non-market output • General administration • Specific services for general population (e.g. foreign policy) • Individual services (e.g. education and health services) • Market output (usually small)

12. Government final consumption How is the Government output measured? Non-market producer in general output valuation on cost basis Thus the output is the sum of • Compensation of employees • Intermediate consumption • Consumption of fixed capital • Other taxes on production

13. Government final consumption Who uses government non-market output? • Expenditure approach: Government • Actual consumption: • General administration and services for the population as a whole Government • Individual government services Household

14. Government final consumption Measurement Government final consumption = Total output - Goods and services sold on the market + Goods and services purchased to be provided free to the population Valuation No product taxes on government output Thus for government; Consumption equals non-market output

15. Government final consumption Estimation Most common sources Government accounts Main estimation process • Adjustment for time of recording • Reclassifications • Competing coverage (e.g. local government, extra budgetary units)

16. Consumption of NPISHs What are non-profit institutions serving households NPIS are legal or social entities • Created for the purpose of producing goods and services • Can not be a source of income, profit or gains for the units that establish, control or finance them.   • Articles of association prevents sharing benefits by owners of NPIs • Serving households • Examples: • Cultural institutions • Philanthropic Institutions • Religious Institutions • Charitable Institutions • Political parties • Sports clubs • Other recreational organizations

17. Consumption of NPISHs What do NPISHs produce? Generally:Goods and services provided for free to households Possibly:Small scale market Goods and services Examples of Goods and services provided for free • Charity (e.g. free food for the poor) • Religious events and counseling political representation • Meeting facilities • Consumer support • Health services • Vocational training

18. Consumption of NPISHs How is the NPISHs output measured? Non-market producer in general output valuation on cost basis Thus the output is the sum of • Compensation of employees • Intermediate consumption • Consumption of fixed capital • Other taxes on production

19. Consumption of NPISHs Who uses non-market output of NPISHs? Expenditure approach: NPISHs themselve • Actual consumption: Households Measurement and valuation Consumption NPISH = Total output - Output sold General assumption in 1993 SNA: NPISHs do not pay taxes on their output Thus for NPISHs Consumption equals Output (non-market)

20. Consumption of NPISHs Data sources • Census/surveys of NPISHs • Household budget surveys • Administrative records (e.g. umbrella organizations)

21. Changes in inventories Four types of inventories • Finished goods • Goods to be used in the production process • Goods for resale • Work-in-progress (e.g. buildings under construction, crops in the field, livestock for production while maturing, fruit trees while growing)

22. Changes in inventories Valuation Main concern:Avoiding including holding gains and losses in the value of transactions Thus: • Goods: • Additions to inventories: at prices prevailing at the time of their entry • Withdrawals from inventories: at prices prevailing at the time of withdrawal • Work-in-progress: • Additions to inventories: at prices prevailing at the time of their entry or costs plus mark up • Withdrawals from inventories: at prices prevailing at the time of withdrawal or costs plus mark up.

23. Changes in inventories Data Sources • Business surveys • Administrative data on stocks held by government entities • Agricultural surveys • Building permits

24. Capital Formation What are they? Definition • Usually goods but also services • That are owned • From which owner expects future economic benefits over a period of time by using it or holding it (asset boundary) • That will be used for more than one year

25. Fixed Capital Formation What are they? Scope • They include • New capital goods • Existing capital goods • Improvements to existing capital goods • They can be • Purchased • Self-produced

26. Fixed Capital Formation – Main Types • Fixed assets • Dwellings • Other buildings and structures including land improvements • Machinery and equipment • Transport equipment • ICT equipment • Other machinery and equipment • Weapon systems • Cultivated biological resources • Animal resources yielding repeat products. • Tree, crop and plant resources yielding repeat products • Costs of ownership transfer on non-produced assets • Intellectual property products • Research and development • Mineral exploration and evaluation • Computer software and databases • Entertainment, literary or artistic originals • Other intellectual property products

27. Fixed Capital Formation Valuation • Market prices • Cost plus mark-up • Discounted future benefits Time of recording • Change of ownership • When construction takes place under a contract of sale agreed in advance the ownership of the structure is effectively transferred in stages as the work proceeds

28. Fixed Capital Formation Data sources • General • Surveys and censuses users and producers • Foreign trade statistics Construction, machinery and equipment • Survey of investors • Survey of construction company and other producers • Administrative data (e.g. building permits) • Foreign trade statistics • Livestock, timber etc. • Agricultural censuses and surveys • Administrative data

29. Valuables What are they? Definition Valuables are assets that: • Are acquired as store of wealth • Are not used up in production • Do not deteriorate over time Examples: • Precious stones and metals • Antiques • Works of arts • Jewellery Data sources: • Household surveys • Retail trade surveys • Surveys and censuses of producers

30. Exports and Imports Scope: Besides general cases of imports and exports, this also includes: • Barter transaction • gifts • Shuttle trade • Goods for processing • Construction services • Installation services • Financial services • Trade and transport services • Transactions with extra territorial enclaves

31. Exports and Imports Sources: • Foreign trade statistics Problems: • Time of recording • Coverage • Currency denomination • Balance of payments statistics Problems: • Lack of details • coverage • Currency denomination

32. Thank You