Measuring GDP by Final Demand Approach An Introduction Vu Quang Viet International Workshop on Measuring GDP by Final Demand Approach Shenzhen, China April 2011

Definition of GDP by final expenditure CategoriesGDP =Data availability/indicators Final consumption+ HouseholdsRetail sale, household survey NPISH? GovernmentReadily available Gross fixed capital formation+Survey + data analysis Households? NPISH? CorporationsSurvey GovernmentMore or less readily available Changes in inventories+Survey Imports-Readily available Exports+Readily available

Shares of components of GDP, 2009 Country Final consumption HHGOVGCFGFCFINVExportsImports China India Indonesia Malaysia Philippines Thailand Vietnam Australia Canada USA

Supply and use table, year = t SUPPLY12345ImportsTrade & Transport margins Product taxes Product supply purchr’ prices Indus. output basic prices USE12345ExportsGCFFCEProduct uses VA Industry output/TT

Estimation in constant prices, year = t+n Given – Industry output in basic prices – Product price indexes – Data on exports and imports – Preliminary data on general government FCE and GCF – Limited information on household FCE Need to do – Convert industry output to product output in purchasers’ prices – Deflate product output – Estimate products consumed as intermediate inputs – Estimate total products that can be used for GCF and household FCE

Data given and estimated, year = t+n SUPPLY current prices 12345Product output in current prices estimated Industry output curr. prices USE in constant prices 12345Product output in constant prices estimated VA Industry output Shares/coefficients in In constant prices

Estimation in constant prices, year = t+n SUPPLYProducts produced ImportsTrade & Transport margins Product taxes Supply of product ? 267.8Data given? 321.6? 41.5? Total USEIntermediate consumption ExportsGCFFCEUses of products ? 24.3Data given? 316.4? 41.1? Total Based on base-year ratios which then adjusted to given totals Estimation by: Extrapolation based on survey, Analysis of production and import data

Estimation of trade (wholesaling retailing) and transport (freight) margins for base year Direct measurement of output of wholesaling, retailing and freight transport services provided to kind of products. Normally: – Wholesaling margins are assigned to intermediate consumption and gross capital formation – Retailing margins are assigned to household final consumption Indirect measurement of margins – Percentage difference between retail price (excluding all sale taxes) and basic price (normally called wholesale price or producer price) of a product unit. These unit prices are regularly collected to calculate CPI and PPI. Allocation rule: Normally margin on a given product is allocated proportionally to the values of products used.

Taxes on products by kind of products of base-year Ratios of taxes on products of the base year are calculated by kind of products. For that, taxes are distributed proportionally to the values consumed, excluding consumption categories that are either not subject to taxes or subject to tax deduction.

Estimation of margins and product taxes for the current year The same ratios are applied to estimate margins and product taxes for the current year for both constant and current prices. – Margins in constant prices: apply the ratios to values of supply at basic values in constant prices. – Margins in current prices: apply the ratios to the values of supply at basic values in current prices.

Trade and transport margins in US, 2002 Producers’ prices Trade and transport margins Freight costs Wholesale and retail trade Purchaser s prices Auto100%45%3%42%145% Tires100%158%2%156%258% Accessories100%136%3%133%236% Furniture100%101%12%89%201% Cereals100%63%3%60%163% Bakeries100%61%2%59%161% Beef & veal100%57%3%54%157% Sea food100%62%3%59%161% Fruits100%101%13%88%200% Vegetables100%114%21%93%214% Processed fruits and vegetables100%62%4%58%162%

Trade and transport margins in US, 2002 Trade and transportProduct Taxes Crops 11%3% Forestry 8%13% Fishery 9%4% Coal mining 22%4% Crude oil, natural gas 20%31% Processed food8%5% Glass, glass products and ceramics 5%4% Wood and construction materials 17%4% Chemicals, fertilizers and medicinal 10%2% Machinery, tools and metal products 8%1% Textiles and leather products 11%2% Products of publishing houses (newspapers, periodicals and books) 10%12% Gasoline and lubricants 5%0% ALL COMMODITIES7%4% GOODS ONLY10%4%

Allocation of supply of goods and services destined to final expenditures Basically, supply of a particular good or service destined to final expenditures = Total uses - Exports - Intermediate consumption Thus, this residue can go either to final consumption or gross capital formation. Allocation rules: – Construction after deducting maintenance should go to GCF – New automobiles should be allocated to households (FC) and other sectors (GCF) on the bases of car registration. Old car is estimated differently – Machineries (need to identify them properly) should go to GCF. – Besides known national inventories (oil, cereal, etc.), shares of products going to inventories should be based on surveys or base-year ratio (if no information is available. Estimation rules: – Base year: all sources of data should be confronted to arrive at reliable data at both detailed and aggregate levels. – Annual/Infra Annual: indicators based on limited but consistent set of data are used to extrapolate base-year data.

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