Input Output Framework Workshop Industry Accounts Division Statistics Canada Fabienne Leclerc Calgary December 4, 2008 Industry Accounts Division

2 Outline of the Workshop Overview of the I-O accounts -Mandate -Production cycle Structure of the I-O tables -Why Regular? -Industry and Commodity dimension - Industry and commodity Account Balance Example Case study: The clothing industry Valuation: difference between purchaser and producer The I-O Framework Applications Regionalization of the IO model - Assumptions -Outputs of the model -Confidentiality constraints Simulations – case studies Multipliers and ratios

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5 Mandate of the division The mandate of the Industry Accounts Division (IAD) is to develop provincial annual and monthly national production accounts for Canada. Annual input-output tables for Canada in current and constant prices serve as the foundation for national monthly measures of constant price GDP by industry, while the inter-provincial input output tables perform this function for the annual current and constant price measures of GDP by industry for the provinces and territories In addition, the IAD supplies benchmark data for other modules of the Canadian System of National Accounts by way of annual national Input-Output (I/O) tables in current and constant prices, annual provincial Input-Output tables as well as interprovincial trade flows in current prices, supplementary tables on GDP by industry, taxes and other margins by commodity and industry.

6 The information provided by IAD is critical to the ability of governments and the private sector to make well informed economic decisions. Because the monthly GDP program provides the most timely measure of the status of the Canadian economy, it is a key indicator used by the Bank of Canada in setting monetary policy. Like the Bank of Canada, the Department of Finance also monitors the evolution of the economy, in its case to plan the federal budget and formulate macroeconomic policies.

7 This information is used by provincial and territorial governments (for example, by their finance and industry ministries) in tracking industrial sources of economic growth or contraction, and in their budgetary planning. The statistics allow them to assess the impact of economic events, and of their economic development programs on particular sectors of their economies.

8 The I-O tables are also used by fiscal authorities to allocate and forecast commodity taxes by way of taxable proportions of personal expenditures, by province and by category, for HST revenue allocation (these are necessary for estimation of HST applicable level of spending for personal expenditures); by way of levels of taxable expenditure subject to HST for industries engaged in the production of tax-exempt supplies by province; by way of national estimates of trade, transport and tax margins (13 types in 1996) by commodity and type of user

9 The I-O table production process also serves to perform a measure of quality assurance audit to statistics provided by data supplying Divisions as well as providing regular feedback to these Divisions. This role is made possible through the integration of numerous data sources used in the construction of the Input-Output tables. The IAD also provides services on a cost-recovery basis to clients in government, business and academic communities, through direct sales of customized data bases and by performing economic impact simulations with internally developed input-output models on specifications provided by the client. The bulk of the data needed to calculate aggregate productivity measures and other performance indicators also comes from the I-O tables.

10 Input-Output Production Schedule National tables are produced June each year with a 30 month lag from the reference year Provincial tables are produced and released together with the national tables in November of each year with a 34 month lag from the reference year

Relationship between the I/O Framework and the SNA National Input-Output Tables Satellite Accounts Income and Expenditure Accounts Productivity Estimates National GDP by industry Balance of Payments Accounts Environmental and resource accounts Provincial Economic Accounts Provincial Input-Output Accounts Provincial GDP by Industry Accounts Interprovincial Trade Flow Accounts

12 BASIC STRUCTURE OF CANADIAN INPUT-OUTPUT TABLES Rectangular Input-Output Tables developed at Statistics Canada Inputs and Outputs of industries are presented in separate rectangular tables, showing Industry by commodity detail, (number of commodities exceed number of industries) Input-Output tables consist of 4 matrices 1. Make Matrix (Outputs) 303 industries 727 commodities 2. Use Matrix (Inputs) 303 industries 727 commodities 3. Final Demand Matrix 172 categories 727 commodities 4. Trade flows 727 commodities

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14 Industry Balance Account level S (year 2005) example  The total production value of any or all industries in the output table equals the sum of the intermediate inputs plus Gross Domestic Product inputs in the inputs table.  As an example, industry 5 for mining and oil and gas extraction, shows a production total value of 155,827.6 million dollars in the 2005 outputs table. The same value of total inputs of this industry of 155,827.6 million dollars is shown as the column total of the 2005 inputs table. The Gross Domestic Product inputs (at market price) shows as rows is 111,390.0 million (71.5 % of total) and the intermediate inputs of goods and services is 44,437.6 millions (28.5 % of total) shown as rows 1-51.

15 Input-Output Identities Gross Domestic Product Market Price (2005)  Inputs table total column –sum of rows 52 to 59 –GDP market price inputs 1,284,596.9  Plus Final Demand table total column –sum of rows –GDP Market price Final Demand 88,030.9  Equals GDP market price –Income side 1,372,627.7  Equals expenditures on GDP –grand total of Final Demand

16 Industry Dimension 3I/O Industry structure is NAICS-based -6-digit NAICS Industries (over 900) linked to I/O Industry (303) -I/O Industries are on establishment concept -Universe is based mainly on the Statistics Canada Business Register -(BR is generally used as a survey frame by survey divisions) -I/O Industry includes Input costs and Output values (similar to profit and loss statements of businesses; outputs akin to revenues, inputs akin to expenses incurred to generate revenues) -Data sources include Surveys, Administrative data, annual reports, etc.

17 I/O Industries (con’d) All Survey and admin data can be linked to NAICS which in turn is linkable to I/O Industries There are issues related to consistent Industry linking (company vs establishment vs enterprise) which causes data confrontation issues I/O analysts review survey methodologies and results focussing on such things as universe, coverage, response rates, imputations, edits; production may be under/over reported, imports and exports may be improperly valued, commodities may be misclassified. Time-series require significant interaction and feedback to survey division Survey results are compared to other data where available such as: administrative data for wages (T4), GIFI (General Index of Financial Information), (corporate income tax file from CRA), Net income (T1)

18 Detail of the 303 industries and the 172 categories of final demand 287 Industries (Business sector) 16 Industries (Non-business sector) categories of consumer expenditures 52 categories of current investment in machinery and equipment 53 categories of current investment in construction 4 categories of changes in inventories 1 category of domestic exports 1 category of re-exports 1 category of imports 6 categories of Federal, Provincial and Municipal expenses 1 category of interprovincial imports 1 category of interprovincial exports 172

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21 Commodity Dimension  Industries produce and sell commodities which are either goods or services.  Input-Output goods commodities are concorded to the International Harmonized System (HS) standard classification of goods (SCG).  Input-Output service commodities are specified by type and will be concorded to the international Central Product Classification (CPC) (yr. 2007).

22 Commodity Balance Account Level S (year 2005) example  The production of a commodity (supply) equals the sum (demand) of intermediate use (inputs table) plus final demand (final demand table)  The domestic production from Canadian industries of the row commodity 23, motor vehicle, other transportation equipment & parts is 133,576.6 millions for all industries in the outputs table.  The Inputs table shows a total use of 68,504.4 millions of this commodity plus final demand total use of 65,072.2 millions equals 133,576.6 millions

23 The relationships above are shown schematically (year 2005) Inputs Final Demand Total Row Row 51 Row GDP Row 59 Total ,285 Intermediate 1,285 88

24 NAICS 1859-Other clothing acc. National level CategoryIo Table 2001F 2002F 2003F 2004P SupplyOutput Margins Imports Supply Total DemandInput Final Demand Demand Total Balance0000

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27 DIMENSIONS AND CONFIDENTIALITY CONSTRAINTS NAICS’s based Classifications: “W”“L”“M”“S” Industries Commodities Final Demand Categories Interprovincial I-O table adds final demand categories for Exports and Imports with each province/territory National I-O tables are published at “S” level. The “S”, “M” and “L” levels are available on CANSIM. Interprovincial I-O tables are only publicly available at “S” level Confidentiality constraints make it difficult to release provincial data at more disaggregated levels Simulation model services are available using “W” level detail

28 BASIC STRUCTURE OF INPUT-OUTPUT TABLES MAKE 719 X 303 Commo dities = + USE 719 X 303 Final Demand 719 X 172 = Gross output of commodities Categories are reflected through all 13 provinces/territories + = + + = = = Industry use of primary factors 8 X 303 Final use of primary factors 8 X 172 GDP income based Gross output of industries Total use of industries GDP expenditure based = Industries Categories

29 ACCOUNTING IDENTITIES Commodity balance: Production + imports = intermediate use + domestic final use + exports Industry balance: - Total output of an industry (gross output) = its intermediate inputs + primary inputs - Gross Domestic Product (expenditure based) = Gross Domestic Product (income based)

30 PROVINCIAL AND INTERPROVINCIAL INPUT-OUTPUT TABLES A Provincial Input-Output table looks identical to the National An Interprovincial Input-Output table accounts for economic linkages among the provinces and territories, adding 24 final demand categories for exports and imports for each province and territory

31 PROVINCE/ TERRITORY EXPORTSIMPORTS Newfoundland Prince Edward Island Nova Scotia New Brunswick Québec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon Territories Northwest Territories Nunavut Government Abroad IxIx P xi IMIM P Mi I x =International exports P xi =Provincial exports I m =International imports P mi =Provincial imports Categories reflect 719 commodities and indirect taxes on products by province. Interprovincial Trade Flow Matrix

32 Interprovincial Trade Flows In addition to international exports and imports, we show provincial exports and provincial imports. This introduces three additional constraints. A)Across regions, total regional imports equal total regional exports, net (interregional) trade balances of regions sums to zero. B)Sum of foreign exports (foreign imports) of regions equal total national exports (imports). C)Across regions, total supply equals total disposition.

33 CONVENTIONS FOR INTERPROVINCIAL FLOWS 1. Exports can originate from a region if the goods or services are produced in that region or are withdrawn form inventories of establishments in that region. A regional export also occurs when services (e.g. hotel accommodations, meals or entertainment) are purchased within a region by a non-resident while staying in that region. 2. Imports are defined for a region if the goods or services are destined for the region's current expenditure, for capital formation in the region, used as intermediate inputs by establishments in that region, or make up additions to inventories.

34 I/O treatment of imports and exports Contrast this concept with imports and exports by port of lading or custom clearance. They are in many cases not consistent with true origin and destination. Since goods and services are valued at approximate basic prices, interregional imports and exports are more complex as goods imported from another region may lead to import of various margins from other regions or abroad.

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37 VALUATION OF INPUT-OUTPUT CELLS All Cells must be valued consistently in order for tables to balance For Analytical Uses I-O tables are valued at producer prices Producer Price = selling prices at boundary of the producing establishment (in manufacturing, “factor gate” price) excluding all taxes Purchaser Price = valuation of commodities purchased by industries and final demand sectors Margins =There are 7 types of margins that are used to convert between purchaser and producer price valuations: retail, wholesale, tax, transport, gas, storage and pipeline I-O tables are first balanced in purchaser prices and subsequently in producer prices

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39 Producer to Purchaser valuation for a commodity Value  Domestic plant produce a good g 3 60  Good is transported to a wholesaler 1  Good is bought by a wholesaler61  Good is sold by the wholesalerto a retailer68 Wholesale margins 7  At point of sale tax is levied12  Final purchaser value to the buyer sold by retailer plus tax80

40 Purchaser to producer price valuation of Inputs to a buyer  Suppose the good valued at 80 is a input to an industry which also buys other goods and services and GDP components  The purchaser price to producer price maybe shown

41 Inputs for an Industry

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Exports: purchaser’s price vs producer’s price The exports are valued at the border (purchaser’s price) which includes a transport margin. Ex: export of a good produced in a factory in Ontario Purchaser’s price: $15, Producer’s price (factory in Ontario):$10, Transportation margin (transporter from Manitoba)$ 5, Then: export at purch. price = $15, But: export from Ontario = $10, (good) export from Manitoba = $ 5, (transport margin) Conclusion:Only the producer’s price shows the true transactions.

45 APPLICATIONS

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55 Output generated (Without leakages) Industry 1Industry 2 Initial demand10 first round second round third round ………… …… Total x.2x.4 GDP Sum = 10

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57 COMMODITIES (719 commodities) INDUSTRIES (300 industries) FINAL DEMAND CATEGORIES TOTAL CIINVINV GXIXI XPXP MIMI MPMP COMMODITIES (719 commodities) Intermediate inputs Gross Output by Commodity INDUSTRIES (300 industries) Production Gross Output by Industry Indirect taxes on products Primary inputs GDP (income based) Indirect taxes on production Subsidies on products Subsidies on production Wages and salaries Supplementary labour income Mixed income Other operating surplus TotalGross Output by Commodity Gross Output by Industry GDP (expenditure based) Accounting framework for the Canadian Provincial Input-Output Accounts Categories are reflected through all 13 provinces/territories C = Consumption (personal expenditure) I = InvestmentINV = Inventory Change G = Government current expenditure XI = International exportsMI = International imports XP = Provincial exportsMP = Provincial imports

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60 BASIS FOR DERIVING THE IMPACT MATRIX Matrix of Market Share Coefficient Calculated from MAKE MATRIX Industry shares of production of each commodity g=D T q Matrix of Technological Coefficients Calculated from USE MATRIX Inputs required to produce a dollar of industry output Ui=Bg Assumptions Each industry has fixed market share of any commodity Technical coefficients of each industry are fixed

61 DERIVING THE IMPACT MATRIX (Simplified version) (i)g =D T q (ii)Ui = Bg (iii)q = Bg + e q is the total commodity output vector; Bg is the intermediate input vector and e is the total final demand input vector exogenously specified by users (q = Bg + e is the accounting balance between the supply and total disposition of each and every commodity) Multiply both sides of equation (iii) by D: We obtain (iv) Dq = DBg + De From equation (i) Dq = g we substitute Dq by g in (iv) g = DBg + De and we isolate g (I-DB) g = De to obtain the impact equation: g = (I-DB) -1 De This is a simplified version of an economy without leakages (Imports, etc.)

62 THE NATIONAL INPUT-OUTPUT “OPEN” MODEL (I-DB) -1 D represents an open IO model in a closed economy with no imports of goods and services and no inventory stocks Leakages flows originating from outside the business sector or from production in a previous year 1. Imports ( µ ) 2. Withdrawals from inventory (  ) 3. Other, e.g., disinvestment of machinery and equipment as scrap

63 REFORMULATING THE MODEL To account for leakages the solution is re- written as: g = [I-D(I-  -  )B] -1 D And the impact matrix becomes: [I-D(I-  -  )B] -1 per dollar of industry output [I-D(I-  -  )B] -1 D per dollar of commodity output

64 Output generated (With leakages) * Industry 1Industry 2 Total x.2x.4 GDP Sum = 6.3 *Manufactured goods 0.2 Other goods 0.1 Services 0.03

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66 Shows the links between final demands and total industry outputs A simple regional IO model g = [I - DRB] -1 D(Rf + x) g = gross outputs by industry (ind. by prov.) D = market share matrix (ind. by com. by prov.) B = input coefficients (com. by ind. by prov.) R = regional import coefficients (com. by prov. by prov.) f = domestic final demands (com. by prov.) x = exports (com. by prov.) Inter-industry transactionsIndustrial dimension of final expenditures exports Domestic final expenditures Regional imports coefficients

67 OUTPUTS OF MODEL Direct Impacts - Industry output delivered to final demand, the value-added associated with this output as well as other supply to final demand directly Indirect Impacts - Industry output delivered to other industries, the value-added associated with this output as well as other supply to industries Total Impact = Direct + Indirect Impacts Impacts can be expressed in terms of: - Production (Gross Output)- Value-added (GDP) - Labour Income- Imports - Employment- Resources Multiplier - Ratio of total impact to exogenous shock

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69 AAFC I/O Model

70 NoCodeIndustries (W) Greenhouse, Nursery and Floriculture Production 2111A00Crop Production (except Greenhouse, Nursery and Floriculture Production 2a111A01Wheat 2b111A02Feed grain 2c111A03Oilseed 2d111A04Potatoes 2e111A05Fruits & Vegetables 2f111A06Other Crops Animal Aquaculture 4112A00Animal Production (except Animal Aquaculture) 4a112A01Dairy 4b112A02Cattle 4c112A03Hogs 4d112A04Poultry and eggs 4e112A05Other livestock Support Activities for Crop Production Support Activities for Animal Production

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Statistics Canada’s SPSD/M The Social Policy Simulation Database and Model

75 The SPSD/M Statistics Canada’s SPSD/M is an integrated database and tax/transfer simulation model  The SPSD/M concentrates on calculating the first round impacts of Canadian tax/transfer policy on individuals and families  Income taxes, payroll taxes, cash transfers, and commodity taxes.  It makes use of I/O data and modelling techniques to estimate the distributional impact of commodity taxes on families and individuals  F0002X

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79 References Hoffman et al., User’s Guide to Statistics Canada Structural Economic Models, Input-Output Division, Statistics Canada, Miller, E. Ronald and Blair, Peter D., Input-Output Analysis: Foundations and Extensions, Prentice- Hall, New Jersey, United Nations, Handbook of Input-Output Table Compilation and Analysis, Series F, No. 74, New York, 1999.

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83 Selected articles from Statistics Canada Sport Utility Vehicles: Driving Change by Erik Magnusson Manufacturing, Construction and Energy Division; Catalogue no MIE The Soaring Loonie and Prices: Lower Inflation for Consumers? by Radu Chiru, Prices Division Catalogue no MIE Multipliers and Outsourcing: How industries interact with each other and affect GDP; by Philip Cross and Ziad Ghanem Rising energy prices: How big a shock to consumers and industry? by Philip Cross and Ziad Ghanem Canada's natural resource exports by Philip Cross and Ziad Ghanem Offshoring and Employment in Canada: Some Basic Facts by Anick Johnson and René Morissette