Regional GDP Workshop

Purpose of the Project

October Regional GDP Workshop Regional GDP Scope Annual Current price (nominal) GDP By region and industry Using the production approach

October Regional GDP Workshop Components of GDP Intermediate Consumption Compensation of Employees Operating Surplus and Consumption of Fixed Capital Net Indirect Taxes Output

October Regional GDP Workshop How to measure regional GDP Two main approaches 1.Indirect Uses a variable with a regional dimension correlated with GDP, e.g. –employment numbers –wages paid

October Regional GDP Workshop 2. Direct Based on direct surveying of units and their transactions. Builds up GDP in the same way that the national accounts are compiled.

October Regional GDP Workshop Issues With Direct Approach Units with regional dimension needed Complex Depends on data availability Heavy data requirements More expensive than alternatives Not particularly timely Still preferred method though

October Regional GDP Workshop The Direct Approach Direct is preferred because It reflects national accounts methods Allows estimation by unit Avoids assumptions such as constant employment to value added ratios Allows us to compile individual aggregates by summing source data We have the data (AES)

October Regional GDP Workshop What method do we choose? No existing economic collection is completely suitable for estimating regional GDP Method will be data driven We are assessing –What source data might be suitable –Where the gaps are –Costs of filling the gaps –The most appropriate methodological choice

Deliverables & Timing

October Regional GDP Workshop Main Stages Evaluation and proposed methodology Mid-Oct 2005 Compilation begins. Update on progress to MED End 2005 Compilation completeJuly 2006 Final project report draftedSept 2006 Final project report publishedEnd 2006

October Regional GDP Workshop Data Evaluation Identify potential regional GDP data (regional / economic) Evaluate and list characteristics Many economic data sources not designed regionally – but still evaluated Many regional data sources not on a National Accounting basis

October Regional GDP Workshop Methodology Review international best practice European Statistical Commission (Eurostat) – also prefers ‘direct’ approach Concepts and classifications Integrate data evaluation and methodology review

October Regional GDP Workshop Compilation Follow the “road map” Compile estimates Analyse and compare estimates Quality assessment important as there should be “something” produced Determine how weak areas can be improved

October Regional GDP Workshop Final Report Feasibility of producing regional GDP on an ongoing basis Release depends on quality of regional GDP series Future Recommendations depend on feasibility. If not feasible, the recommendations will focus on how the series could be made feasible

Concepts & Classifications

October Regional GDP Workshop A brief look at the main concepts 1.Statistical unit 2.Residency 3.Region 4.Industry

October Regional GDP Workshop Enterprise An ‘owning’ unit making financial decisions on behalf of the producer units. Kind of Activity Unit (KAU) Producer of goods and services which is classified to industries and from which financial information is collected. Geographic unit (GEO) A ‘location’ unit at which economic activity is carried out. Does not have financial information. Has employment related information. Can be classified to region Can be classified to industry Statistical units

October Regional GDP Workshop What kind of unit do we need? A production unit (KAU), but which can be located in a region We’ll call it the Local KAU

October Regional GDP Workshop The Local KAU Will be estimated from the regional information given by the GEO Will have the same industry classification as its ‘parent’ KAU Must have labour and/or capital

October Regional GDP Workshop Assumptions about statistical units The existence of a GEO on our business register will be considered enough evidence for us to create a local unit Where factors of production are identified but no corresponding stat unit exists, e.g. GEO, we will attempt to create a local KAU.

October Regional GDP Workshop Issues with Statistical Units –Local KAU. We don’t have one –Factors of production in one region but producer unit in another –Mobile equipment. What to do when capital assets move between regions –Fixed capital that spans regions –Capital intensive industries

October Regional GDP Workshop Residency 1.Residence concept allocates value added to the region where the production unit is resident based on the physical and legal existence of a unit in a region

October Regional GDP Workshop Residency contd … 1.Territory concept Allocates activity to the region where it takes place Reflects the activity of labour and capital operating in a region regardless of where the ‘owning’ production unit is located.

October Regional GDP Workshop Which residency concept to adopt? We adopt the Residence principle. Allows us to build up regional GDP using the direct method. But …

October Regional GDP Workshop Creation of local KAUs Where we identify factors of production we will establish local KAUs So we identify activity taking place at particular locations – a territory concept!

October Regional GDP Workshop Issues with residency NZ lacks a ‘local KAU’ in its statistical unit classification so assigning residency criteria can be difficult –Assigning residency to factors of production that move around –No ‘unit’ exists but factors of production are present.

October Regional GDP Workshop Special cases. Residency and Statistical Units Special cases involve: – Multiregional activity –Factors of production in one region but owner/operator in another –What industry classifications do we want? –Mobile equipment. Capital assets moving between regions –Fixed assets that cross regions such as roads –Capital intensive industries

October Regional GDP Workshop Region 1.Propose 16 regions 12 regional council areas 4 unitary authorities All regions treated equally in the study Smaller regions a good test of feasibility

October Regional GDP Workshop North Island

October Regional GDP Workshop South Island

October Regional GDP Workshop Industry Will test the feasibility of producing regional series by 30 industry groups May have to aggregate to fewer groups depending on quality and confidentiality

October Regional GDP Workshop National Accounts published industries

Data & Methodology

October Regional GDP Workshop Process to determine methodology Several potential approaches possible. Direct (bottom-up) and Indirect (top- down) Direct approach needs to be investigated

October Regional GDP Workshop Direct process Evaluate potential data sources Determine data source with most potential No perfect data source out there. Need mitigation strategies to make data sources fit in better with regional GDP requirements

October Regional GDP Workshop Provisional Estimate Unit record financial surveys (direct sources) often not particularly timely Recognise there is demand for timely regional GDP estimates Separate approach for timely ‘provisional estimates’ : lower quality, more aggregated

October Regional GDP Workshop Annual Enterprise Survey (AES) Annual economic survey Main National Accounts source for production side data by industry

October Regional GDP Workshop AES as a regional GDP source Unit data available by industry – yes Components of GDP – yes Financial information – yes National Accounting basis – yes Regional collection – no Meets residency condition - no

October Regional GDP Workshop AES: residency Mitigation: investigate using separate unit data that to better apportion AES survey data across regions

October Regional GDP Workshop AES: collection design mitigation Mitigation strategy: identify weak areas. Use alternative data sources.

October Regional GDP Workshop AES as a regional GDP source Unit data available by industry – yes Components of GDP – yes Financial information – yes National Accounting basis – yes Regional collection – work around Meets residency condition – model

October Regional GDP Workshop Regional Economic Indicator (REI) Regionalised Business Activity Indicator (BAI) Quarterly GST sales and purchases Net GST sales as proxy for GDP, many conceptual differences though Only released at regional level AES preferred

October Regional GDP Workshop Role of Regional Economic Indicator Possible back-up data source where there are gaps in AES coverage, or AES sample errors are high Provisional estimate

October Regional GDP Workshop Linked Employer-Employee Data (LEED) Links IRD administrative data with the SNZ Business Frame Available later this year Employment data (including salaries and wages) by industry by region

October Regional GDP Workshop Role of Linked Employer-Employee Data Regional Compensation of Employees component (using salaries and wages) Means to apportion AES data Could also be used for regional GDP estimates where AES is weak Provisional estimate

October Regional GDP Workshop Industry methodology review AES proposed core data source Gaps in coverage Issues with mobile capital, networks etc May be superior data sources for some industries Review of methodology at the industry level required

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