1. Estimation of Gross Value Added by Economic Activity UNSIAP_AC1

2. Enterprise, Establishment and Industry Enterprise – a unit in an institutional sector engaged in production Establishment - a production unit defined by location and homogenous product, enterprise or a sub-unit of enterprise Industry - group of establishments engaged in same economic activity or producing same commodities International Standard Industrial Classification of all Economic Activities (ISIC) UNSIAP_AC2

3. Activities of Establishment Primary activity - production activity with highest share in output or gross value added Secondary activity - other production activities Ancillary activity - activity whose output is for internal use of the establishment or enterprise UNSIAP_AC3

4. Types of Output Goods Tangible Transferable (ownership change) Can be stored Service Intangible Non transferable Produced as delivered UNSIAP_AC4

5. 5 Human R Produced fixed R Natural R Financial R Good & Services from Production COMP CFC OS T-S OUTPUT goods and services Sale Change in inventory Own final use Production Intermediate input Value added Output Intangible produced government

6. How to Measure Gross Output (GO) Physical output- product of volume(unit) and price(value per unit) Disposition - sum of all outflow of output Input cost - sum of all cost in production UNSIAP_AC6

7. How to Measure Gross output (Contd.) Physical Output: the gross output (GO) is GO = quantity *unit price e.g. GO = Kg fish* average price per kg GO = number of tourist nights * average room rate per night UNSIAP_AC7 Q P

8. How to Measure Gross output (Contd.) Disposition GO = Sales + Change in inventory + Own final use Change in inventory = closing–opening inventory or entry + withdrawal + normal losses Own final use = own production for final consumption + own capital formation UNSIAP_AC8

9. How to Measure Gross output (Contd.) Input cost GO = intermediate consumption + compensation + taxes net of subsidies on production/product + consumption of fixed capital + net operating surplus/ mixed income UNSIAP_AC9

10. What are these terms? Quantity - the number, or volume of the goods produced or number of units of services provided Price - the value of a unit of good or service provided depending upon the tax paid by producer factor price ( no tax) basic price ( production tax only) producer price ( tax on product paid by producer, not invoiced to buyer) UNSIAP_AC10

11. What are these terms? (Contd.) Sales - Sale of goods and services for cash,credit, or barter. Change in inventory - addition/reduction to inventory of finished goods, goods in process, or goods for resale (closing inventory - opening inventory) Own final use - goods and services used for own final consumption and own capital formation UNSIAP_AC11

12. What are these terms? (Contd.) Cost of Production Intermediate input/consumption - goods and services purchased by producers and used as part of production consumed during production paid for by producer UNSIAP_AC12

13. What are these terms? (Contd.) Cost of Production Intermediate input/consumption - Examples: seeds, fertilizers, raw materials, fuel, electricity, water, chemicals, packing material, transport charges, accounting / business services, food material in restaurants, linens in hotels, wrapper in retail trade, insurance services charge, etc UNSIAP_AC13

14. What are these terms? (Contd.) Cost of production Compensation - wages, salaries, commissions and other benefits to employees or workers for their labour input includes social security or provident fund contribution of employer for the employees maybe paid in cash or kind UNSIAP_AC14

15. What are these terms? (Contd.) Cost of production Compensation (example) salaries of employees wages of construction workers bonus, tips of waiters in restaurants clothing allowance given to employees food allowance, housing benefit, gasoline allowance, etc.. UNSIAP_AC15

16. What are these terms? (Contd.) Cost of production Consumption of fixed capital the value of the replacement cost of fixed assets used for production/ value of services of fixed asset in production; the asset is revalued every accounting period consumption of fixed capital is estimated on the revalued asset; accounting entry because fixed assets are owned by producers. UNSIAP_AC16

17. What are these terms? (Contd.) Cost of production Taxes are transfer to government ( something for nothing) Subsidies are transfer of government to producers ( something for nothing) considered as negative taxes UNSIAP_AC17

18. What are these terms? (Contd.) Types of Taxes Taxes on production – Imposed on producers and users because of production Taxes on income and wealth – Taxes on institutional units or persons on income received or assets owned Taxes on capital – Taxes on capital transactions which are not on regular basis UNSIAP_AC18

19. What are these terms? (Contd.) Taxes on Production Taxes on product – Taxes imposed on finished product or service delivered E.g: excise tax, sales tax, value added tax, service tax, import duties, export tax, etc. Other taxes on production – Taxes imposed on inputs or other factors of production used in production E.g: land tax, building tax, road tax, license to operate, etc. UNSIAP_AC19

20. What are these terms? (Contd.) Subsidies Subsidies are negative taxes granted by the government to: reduce /stabilize the price maintain production maintain returns to factors of production UNSIAP_AC20

21. What are these terms? (Contd.) Other Cost of Production Operating surplus - the balance or residual when all the costs are deducted from the value of goods and services produced Mixed income - the balance or residual in household enterprise; combination of compensation and operating surplus UNSIAP_AC21

22. What are these terms? (Contd.) Operating surplus Includes incomes for the use of assets (produced, non produced, financial) owned by producer Includes incomes due to assets of other institutions put at the disposal of producers by other institutions UNSIAP_AC22

23. What are these terms? (Contd.) Mixed Income Balance or residual in cost of production of household own account enterprise Includes compensation and operating surplus of household own account enterprise Includes imputed compensation of unpaid family workers engaged in the household enterprise production UNSIAP_AC23

24. Where to apply these? Market goods and services,use: – physical output multiplied by price –disposition –cost with operating surplus Non market goods and services, use –input cost without operating surplus –generally applied for general government units and non profit institutions serving households UNSIAP_AC24

25. Where to apply these? (Contd.) Market goods and services GO = quantity * unit price GO = sale + change in inventory + own final use GO = Intermediate input +compensation + taxes net of subsidies + consumption of fixed capital + operating surplus UNSIAP_AC25

26. Where to apply these? (Contd.) Non market goods and services, use GO = intermediate input + compensation + taxes net of subsidies + consumption of fixed capital UNSIAP_AC26

27. Valuation/Measurement of Output UNSIAP_AC27

28. Valuation of Output Output has different valuations based on taxes net of subsidies included in the price of the product: factor price = price without any tax GO(factor price) = IC + COMP + CFC + Net Operating Surplus UNSIAP_AC28

29. Valuation of Output (Contd.) basic price = price which includes the value of other taxes on production GO (at basic price) = IC + COMP+ CFC + other taxes net of subsidies on production + net operating surplus UNSIAP_AC29

30. Valuation of Output (Contd.) producers price = price which includes taxes net of subsidies on production and on products which are paid by producers themselves GO = IC + COMP+ CFC + T-S (on production and products) + net operating surplus UNSIAP_AC30

31. Measurement of Market and Non Market Output Market goods and services, – physical output multiplied by producer or basic price – disposition – cost with operating surplus UNSIAP_AC31

32. Measurement of Market and Non Market Output Non market goods and services – cost without operating surplus (output of general government, NPISH) UNSIAP_AC32

33. How to treat output of special industries? Cultivated assets GO = Sale + change in inventory + own final use Example- Cultivated forest Trees were planted and expected to be cut for sale after 4 years. The following are the estimated value of opening, closing inventory, intermediate consumption and sale UNSIAP_AC33 0 100250400 1990 199119921993 30 70 90 100 700 sale during the year

34. Cultivated forest GO = Sale + change in inventory+own final use UNSIAP_AC34 0100250 400 19901991 1992 1993 30 7090100 700 0 1990199119921993 Closing stock 100 250 400 0 Less opening stock - 0-100-250-400 = change in inventory 100 150 150 -400 + Sales 0 0 0 700 + own final use 0 0 0 0 = GO 100 150 150 300 - II/IC 30 70 90 100 = GVA 70 80 60 200

35. The services provided for making the goods available to the purchasers GO = Sale - cost of goods sold Cost of goods sold = purchases of goods for resale + opening stock of goods for resale - closing stock of goods for resale GO = sale + closing inventory - opening inventory - purchases of goods for resale UNSIAP_AC35 Trade

36. Example: A retail store in 2003 recorded the following transactions: sale = 50,000 purchases of goods for sale = 30,000 opening stock= 4,000 closing stock= 5,000 utilities = 200 supplies = 500 other services paid =50 GO = 50,000 + (5000-4000) -30,000 = 21,000 GVA = 21,000 - ( 200+500+50) = 21,000 - 750 = 20,250 UNSIAP_AC36 Trade

37. GO = service charges and other receipt from services + FISIM FISIM ( financial intermediation services indirectly measured) =Value of services integrated in the computation of interest on deposit and loans. Imputed service charge = Interest received on loans - interest paid on deposits UNSIAP_AC37 Banks

38. FISIM: On Loans = (actual - pure) interest rate On Deposits = (pure -actual) interest rate UNSIAP_AC38 BANKS HOUSEHOLD CORPORATION 10% (pure interest rate) 6 % = pure interest rate - FISIM 15% = interest rate plus FISIM Banks

39. Example: household deposited 500 mil and bank lent out 300 mil if the reference rate is 10 % what is the FISIM of bank? FISIM rate on deposit = 10% - 6% = 4 percent FISIM ON DEPOSIT = 500(0.04) = 20 mil FISIM rate on loan = 15% - 10 = 5 percent FISIM ON LOAN = 300(0.05) = 15 mil There are other deviations in the estimate of FISIM depending upon the availability or choice of reference rate and the data UNSIAP_AC39 FISIM

40. Other special industries: Insurance Non life or term insurance GO = premium payable + supplemental premium - claims Life insurance - GO = premium payable + supplemental premium - claims - change in actuarial reserve UNSIAP_AC40

41. Gross Value Added UNSIAP_AC41

42. Estimation of Gross Value Added Direct estimation GVA t = GO t - II t GO t = the value of gross output at period t II t = the value of all the intermediate input used in production UNSIAP_AC42

43. Estimation of Gross Value Added Indirect Estimation GVA t = GO t* gvar GO t = value of gross output gvar = gross value added ratio = GVA/GO UNSIAP_AC43

44. Estimation of Gross Value Added Indirect Estimation GVA t = GO t-1 *GOE – II t-1 * IIe GVA= gross value added at t GO t-1 = gross value of output at t-1 GOE = gross output extrapolator ( data from survey, proxy statistics, other output value indicator - GO t /Go t-1 ) II t-1 = intermediate input at t-1 II e = intermediate input extrapolator ( data on major input, other data on input – II t /II t-1 ) UNSIAP_AC44

45. Estimation of Gross Value Added Indirect Estimation GVA t = GVA t-1* GO t / Go t-1 = GVA t-1* gross output value extrapolator Assumption: production technology does not change GVA = GVA t-1 * II t /II t-1 = GVA t-1 * Intermediate input extrapolator Assumption: production technology does not change major intermediate input growth is the same as that of the output UNSIAP_AC45

46. Valuation of GVA GVA at factor cost – Value of GVA without any taxes or subsidies GVA at basic price – Value of GVA with other taxes/subsidies on production GVA at producers price – Value of GVA with other taxes/subsidies on production and taxes/subsidies on product paid by producers GVA at purchasers price – Value of GVA with all taxes on production/product UNSIAP_AC46

47. Estimation of GDP from GVA VAT.xls VAT.xls GDP by Production GDP at basic price =  GVA at basic price  GVA = the sum of the GVA’s of all the different industries GDP at producers price  GVA ( at basic price) + taxes-subsidies on product paid by producers GDP at purchasers or market price  GVA (at basic price) + taxes-subsidies on product UNSIAP_AC47

48. Data Sources for Compilation of GDP by Production UNSIAP_AC48

49. Data Sources for Compilation Censuses and Survey Economic Census Establishment Survey Agriculture Survey Other special surveys Employment surveys UNSIAP_AC49

50. Data Sources for Compilation Administrative by Product Government finance statistics Taxes collected on various industries Report of ministries Financial statement of companies Other by product of administrative function School enrollment Other statistics collected as by-product of administrative functions Building construction permits UNSIAP_AC50

51. Data Sources for Compilation Special Studies Cost of production studies Studies on new industries Other special studies Other sources Expert opinion Special research Newspaper clippings UNSIAP_AC51

52. UNSIAP_AC52 Illustrative Example of how VAT is applied in SNA Compilation

53. Interpretation of the table The purchasers price of goods used for intermediate input is equal to the basic price The total of value added tax from the various flows is equal to the sum of non deductible taxes Sum of GVA at basic price = 700 VAT = 70 GVA at basic price + VAT = 770 Value of final demand (PCE)=770 UNSIAP_AC53

54. Input-Output Framework IndAgriIndServICFCCFX-MTot Agr1020737452028130 Ind15401065304560200 Serv5102540341036120 II30704214210975124450 Comp345033117 T-S625536 GOS/MI 605540155 GO130200120450 UNSIAP_AC54

55. Estimate of GDP from IO matrix GDP by production by economic activity GDP =  GVA = (GO-II)agri + (GO-II)ind + (GO-II)serv =(130-30) + (200-70) +(120-42) = 100 +130 +78 = 308 GDP by expenditure GDP = FC + CF + X-M = 109 + 75 +124 = 308 GDP by Income GDP = comp + T-S + GOS = 117+36+155 = 308 UNSIAP_AC55

56. What are the problems compiling GDP by production? Non availability of data for estimation –subsistence agriculture –large establishments Lack of support from management Inadequate knowledge on some industries Lack of confidence in estimation Not enough personnel Pressure to get the perceived estimates of officials. UNSIAP_AC56

57. How does production affect money flows? Only monetary transactions affect the flow of money. Subsistence production or production for own use does not affect money flows barter transactions such as payment of wages in kind does not affect money flows Transactions through credit will not affect money flows at the time of transactions but will be recorded in financial flows UNSIAP_AC57