IARIW - HSE Conference September 17-18, 2019 Moscow, Russia Digital Economy: Problems and Prospects of Accounting and Measurement in the System of National Accounts IARIW - HSE Conference September 17-18, 2019 Moscow, Russia Presented by: Alexander Abroskin RANEPA, Russia

Statistical puzzles slowdown of labor productivity dynamics in economically developed countries (productivity paradox, productivity puzzle); declining influence of ICT goods production sector on basic macroeconomic indicators; slowdown of labor productivity in industries with the most intensive use of DT.

Challenges to DE accounting and measurement: 1) lower prices for goods and services in the ICT sector in improving their quality characteristics (Byrone, Corrado, 2016); 2) increase in the use of free DE goods and services in intermediate and final consumption and access to their collective (share) use (Aeppel, 2015; Hatzius, Dawsey, 2015); 3) outrunning growth in the expenditures of the commercial sector for ICT services relative to the expenditures of acquiring ICT assets; 4) impact on economic assets formation.

PROBLEMS OF DE ACCOUNTING AND MEASUREMENT IN INTERNATIONAL STATISTICS: object with undefined boundaries; use of subjective criteria in determining the DE structure; dominance of ratings and index constructions in the DE measurement; incomparability of the developed estimates; inconsistency of the developed estimates with the system of macroeconomic indicators.

Questions to be answered: definition of the DE; structure of the DE; methods of the DE measurement; possibility of interpretation of the developed estimates.

DE NETWORK TOPOLOGY

Functional features of the DE: system focused on final users (economics of customization); system with new functional qualities (sharing economy); ability to create configurations with specialized functions (lot, e-commerce, online platforms, etc.) Beneficiaries: commercial sector; general government; households.

DE can be defined as: economy, based on digital technologies (DT) (extended definition); production activity with DT using; economy, based on new methods of data formation, processing, storage and transfer; communication environment of economic activity, based on the Internet, forms, methods and results of its implementation.

Definitions of the digital economy DE characteristics taken into account Source Object - markets of goods and services Key features - the use of e-Commerce systems on the Internet OECD Object - system of economic, social and cultural relations Key features - use of digital ICT World Bank Object - commercial activity Key features are based on the Internet and / or worldwide network BCG Object - national economy Key features - developed ICT infrastructure; use of ICT for the benefit of end-users, the commercial sector and the general government sector Research center of the Economist magazine, IBM Object - global network of economic and social activities Key features - use of the Internet, mobile and sensor networks Australian government Object - economic activity Key features - key factor of production - data in digital form Russian information society development strategy for 2017-2030 Object - national economy functioning mainly Key features – the use of DT for electronic transactions on the Internet Oxford dictionary Object – activities Key features - to create, disseminate, and use digital technologies and related products and services Russian statistics

Proposed DE Definition Economy, in which the integration of production, distribution and use of resources processes, is based on the Internet, with the effects, associated with expanding the range and improving the quality of goods (services) and reducing costs in the main sectors of the national economy.

STRUCTURAL COMPONENTS OF DE: production structures (industry, segment, product); kinds of economic operations (transactional approach); combined structures; specialized (functional) objects.

EXAMPLE OF DE INDUSTRIAL STRUCTURE, OECD Kinds of economic activity Codes Manufacture of office machinery and computers 30.0 Manufacture of insulated wire and cable 31.30 ……………………………………………………   Manufacture of television and radio transmitting equipment, telecommunications equipment 32.20 Manufacture of reception, recording and reproduction of sound and pictures 32.30

Transactional structure of DE

Specialized DE objects: Digital sector (ICT and content and media sectors); Internet economy; E-commerce; Digital trade, Digital Sale; e-government; Internet of Things – IoT; Industrial Internet of Things – IioT; Smart systems (Smart Industries, Smart Farming, Precision Agriculture, Smart sales) etc.

Distribution of different DE objects estimates

MEASURED DE CHARACTERISTICS System of indicators Information base of the estimates Recommendations of international organizations Economy digitalization processes (digital penetration).   Processes of economy digital transformation (digital transformation). Quantitative: Internet audience, mobile Internet users, broadband network development, development of local digital services, widespread access to wireless or broadband technologies etc. ICT Statistics (ICT Indicators Database) Measuring the Information Society/ International Telecommunication Union (2013) Level and dynamics of DE development Index constructions: I-II I-DESI, e-Intensity, II, GDI, etc. Combining the data of science and innovation statistics, ICT, industry statistics, labor statistics, etc. UN, WEF, International Telecommunication Union, Boston Consulting Group, etc. Impact on social and economic processes Basic value indicators Macroeconomic statistics SNA 2008. European system of national and regional accounts (2010)

DISADVANTAGES OF THE EXISTING PRACTICE OF THE DE MEASUREMENT: developed estimates relate to individual sectors of the DE and can not be integrated within the construction of general macroeconomic estimates; use of aggregated classification groups, adjusted on the basis of subjective evaluation coefficients as a basis for the DE structuring; preferential use of the production method of GDP construction in the DE measurement and formal agreement of estimates, obtained on the basis of alternative approaches; focus on recommendations, developed for countries with high level of technological and macroeconomic statistics development; lack of quality adjustments to DE goods and services.

SNA main advantages: Balanced system; Based on developed system of classifiers; System with the logical sequence of accounts; System complemented by table-based application that can be used in macroeconomic analysis and modeling.

International experience of SNA using in DE measurement Works with classifiers; Experimental calculations on DE components accounting (IPP); Adjustments to industry estimates on the basis of supply and use tables; Building analytical models in IOT format; Concepts of satellite accounts construction for DE.

«Digital industries» (DI) Industrial approach «Digital industries» (DI) Use table Industries Export Final consumption CF Goods 1 2 3 n-1 n ∆K L NTPR Value added (VA)  

Adjustment to DG of non-profile industries (+) «Digital» industries (DI) Use table Industries Export Final consumption CF Goods NDG 1 NDG 2 DG 1 DG i DG i+1 NDG m K L NTPR Value added (VA)  

Adjustment to non-profile DG (-) Use table Industries Export Final consumption CF Goods NDG 1 NDG 2 DG 1 DG i DG i+1 NDG m K L NTPR Value added (VA)  

Dynamics of the DE share in Russian economy VA for 2011-2018 гг Dynamics of the DE share in Russian economy VA for 2011-2018 гг., (%) (basic and adjusted estimates)

Adjustment of Russian GDP indicator with R&D capitalization, 2016 Official GDP – 86 tln. rub. GDP adjusted for R&D capitalization – 87.6 tln. rub. (+ 1.9 %) KEY FUNDAMENTAL AND APPLIED RESULRS OF RESEARCH

Components of increase in national income in the capitalization of R&D in Russian economy in 2016, billion rubles KEY FUNDAMENTAL AND APPLIED RESULTS OF RESEARCH

CONCEPT OF DIGITAL SEGMENTS (DS) (digital establishments) Hypotheses used: DS refers to one of the structures providing industry production; accounting of the DS is consistent with the principles of accounting for ancillary activities in the SNA methodology; structure of the DS corresponds to the structure of the digitally enabling infrastructure (BEA); equivalence of DS structure in various industries of national economy; impacts of the digital segment on industry-wide indicators is determined by industrial proportion.

Concept of the DE industrial segments (Internet-based segments)

Advantages of proposed DS accounting and measuring concept: ability to embed the DS in the system of industrial production; ability to account and measure the impact of DS on industry-wide indicators; universality of the proposed approach and possibility of its application for various industries of national economy; ability to construct time series of industry estimates of DS scales; accounting for DS does not contradict the basic provisions of the SNA.

Concept of ancillary activity in SNA An ancillary activity (AA) is a supporting activity undertaken within an enterprise in order to create the conditions within which the principal or secondary activities can be carried out.

Common characteristics related to AA: 1. The output of AA is not intended for use outside the enterprise. 2. AA typically produce outputs that are commonly found as inputs into productive activity. 3. AA produce as output the services (goods) that do not become a physical part of the output of the principal or secondary activity. 4. The value of AA output is likely to be small compared with that of the principal or secondary activities of an enterprise. 5. All the inputs consumed by an ancillary activity (materials, labor, consumption of fixed capital, etc.), are treated as inputs into the principal or secondary activity that it supports.

Digital‐enabling infrastructure (DE current‐dollar value added): Source: Defining and Measuring the Digital Economy. W., BEA, 2018

FUTURE STEPS 1) Works related to the specification of classifiers; 2) The solution within the SNA methodology frameworks to the problems related to accounting DE free services, changes in the quality characteristics of goods and services and services produced within households connected with DE; 3) Works with SNA applications; 4) Combination of different data sources, including statistics and accounting data.

Thank you for your attention!