On the Next Revisions of the JIP Database -Toward Harmonization with the JSNA- Presented at the 2 nd Asia KLEMS Database Management Workshop on October 17, 2014 Kyoji Fukao (Hitotsubashi University and RIETI) Tomohiko Inui (Gakushuin University and RIETI) Toshiyuki Matsuura (Keio University) Tsutomu Miyagawa (Gakushuin University and RIETI) Hideyasu Sato (Graduate School of Agricultural and Resource Economics, University of Tokyo) Joji Tokui (Shinshu University and RIETI) 1

1. Revisions of the JSNA Major revisions of the JSNA have been conducted every 5 or 6 years. A chain price index was introduced in the 2006 revision. A fixed capital formation matrix and a fixed capital stock matrix were published in the 2012 revision. 2

1. Revisions of the JSNA (contd.) The JIP Database has followed the revisions of the JSNA. The advantage of the JIP Database is that it provides longer consistent data than the JSNA. While in the JSNA real GDP data using a chain price index are available only from 1994 to 2014, the JIP Database provides such data from 1970 to Moreover, whereas in the JSNA fixed capital formation and fixed capital stock matrixes are only available from 2007 to 2012, the JIP Database provides such matrixes from 1970 to

1. Revisions of the JSNA (contd.) Next major revisions of the JSNA requiring revisions of the JIP Database: (1)Revision of industry classification (2)FISIM (3)Harmonization of depreciation rates (4)Capitalization of R&D expenditures 4

2. Industry Classification 5

2. Industry Classification (contd.) The precision machinery sector is split and reallocated to other sectors. Section J: Information and communication (ISIC Rev. 4) Division 58: Publishing activities 59: Motion picture, video and television programme production, sound recording and music publishing activities 60: Programming and broadcasting activities 61: Telecommunications 62: Computer programming, consultancy and related activities 63: Information service activities In the JSNA, there is a discontinuity between 1993 and 1994 in the time series data on the information and communication industry. Section M: Professional, scientific and technical activities (ISIC Rev. 4) Division 70: Activities of head offices; management consultancy activities In the case of Japan, we have information about the major activities of each firm to which each head office belongs. Take-out and catering services are moved from retail to eating and drinking places. 6

3. FISIM Financial Intermediation Services Indirectly Measured (FISIM) – FISIM refers to estimates of the value of the services provided by financial intermediaries for which no explicit charges are made. – The 93SNA recommends that countries incorporate FISIM into the SNA. – Japan introduced FISIM in

3. FISIM (contd.) Challenges with regard to the JIP Database: – FISIM not yet incorporated in the JIP Database. – The reason is that GDP figures in the SNA incorporating FISIM only go back to – To incorporate FISIM, we need to estimate FISIM back to 1970 or link the current dataset from 1970 to 1993 with a link coefficient. 8

Impact of FISIM on Nominal GDP Unit: 1 trillion yen ≈ 1 US billion dollars. Source: Kikan Kokumin Keizai, No. 146, Economic and Social Research Institute (Cabinet Office). 9

(Weighted by the investment share of each category in 2011 ) 4. Harmonization of Depreciation Rates: (1) Depreciation Rates Used For the Capital Stock Estimation in the JSNA 10

4. Harmonization of Depreciation Rates: (2) Depreciation Rates Used For the Capital Stock Estimation in the JIP 11

4. Harmonization of Depreciation Rates: (3) Comparison of Depreciation Rates in the JSNA & JIP 12

13 4. Harmonization of Depreciation Rates: (4) Total Nominal & Real Fixed Investment in the JSNA & JIP Sources: The SNA data are from the National Accounts of Japan, while the JIP data are from the JIP Database Note: Total real fixed investment in both the SNA and the JIP Database does not include social capital investment.

4. Harmonization of Depreciation Rates: (5) Total Fixed Assets in the JSNA & JIP 14 Sources: The SNA data are from the National Accounts of Japan, while the JIP data are from the JIP Database Note: Total fixed assets in both the SNA and the JIP Database do not include social capital assets.

15 4. Harmonization of Depreciation Rates: (6) Impact of Capital Stock Growth Rate on GDP Growth Rate

5. Capitalization of R&D Based on the 08SNA, R&D expenditures will be capitalized in the JSNA in Output in R&D service sector = (a) Intermediate inputs + (b) Labor compensation + (c) Depreciation of fixed capital + (d) Net return on fixed capital + (e) Tax on output – subsidies with respect to R&D expenditures. (a), (b), and (c) are estimated from the Survey on Research & Development. (d) is estimated from firms’ operating profit rate. In (e), tax on output is included in (a) and subsidies are estimated from subsidies with respect to R&D expenditures. 16

5. Capitalization of R&D (contd.) Software development costs should be excluded from the estimation of R&D output. R&D capital formation = (f) Output in R&D service sector + (g) Imports of R&D services – (h) Exports of R&D services + (i) Net purchases of R&D services in the domestic market. In the database on intangible investment in Japan, only (a), (b) and (c) are counted. In the database on intangible investment, R&D costs in the information service industry are included. However, own account software investment in the information service industry is not counted. 17

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6. Labor Account and Other Issues Labor account (1): Some of Japan’s labor statistics have started to count dispatched workers at the establishment where they work, not at the agency by which they are dispatched. However, following the 2008 SNA manual, the Cabinet Office will continue to count such workers at the agency which dispatches them. We need to respond to this divergence in the labor statistics. Labor account (2): In order to respond to the recommendation of the 2008 SNA manual to estimate labor productivity, the Cabinet Office will probably try to estimate working hours of self-employed workers in each sector. We will compare this forthcoming series with our estimation. Financial leasing: Financial reports of large firms and corporate statistics started to count capital input financed through financial leasing at the establishment where they are actually used, not at leasing companies. However, the Cabinet Office will continue to count such capital input at leasing companies. We need to respond to this divergence in the capital input statistics. 19

7. Schedule of the Revision of the JIP Database Output and intermediate goods: As we have to wait for the publication of linked IO tables for , the major revision will be conducted in Capital account: It will take one year to reclassify capital assets and to harmonize depreciation rates with the JSNA. Labor account: If the industry classification is revised, we will harmonize the old labor account with the new industry classification. 20

Thank you for your attention! 21