1. ECON 215 Introduction to Economy of Ghana
Session 3 – National Income Accounting Part 2
Lecturer: Dr. Emmanuel A. Codjoe & Dr. Michael Danquah
Contact Information:

2. Session Overview
Session Overview: This session takes a look at the limitations of using the national income as a measure of welfare. It also discusses how national income accounting developed in Ghana and concludes with the methods that are employed in calculating the national output in Ghana.
 Goals/ Objectives: At the end of the session, the student will
Know the limitations of utilizing national income as standard of welfare.
Be able to discuss how national income accounting developed in Ghana
Understand how national income accounting is computed in Ghana.

3. Session Outline
The key topics to be covered in the session are as follows:
Topic One: Limitation Of National Income (Per Capita) As A Welfare Measure
Topic Two: National Income/Output of Ghana
Topic Three: The Computation Of National Income Accounting In Ghana

4. Reading List
Refer students to relevant text/chapter or reading materials you will make available on Sakai

5. LIMITATIONs OF NATIONAL INCOME (per capita) AS A WELFARE MEASURE
Topic One
LIMITATIONs OF NATIONAL INCOME (per capita) AS A WELFARE MEASURE

6. Use of Total Population as the Deflator
The first problem relates to the use of total population as the deflator. Some authors have argued for the use of occupied population (those who are either working or seeking work) as a deflator. What is the justification for this measure?
Let us assume that the population increases because of large families. While these extra numbers are still below working age, no increase in national income is expected. Thus, during this period when the extra people have not reached working age, changes in economic welfare would be misrepresented by a decline in national output per capita. A better measure of economic progress suggested by J.R. Hicks (The Social Framework) is the movement of Real National Income per head of occupied population.
There is also the question of deciding to give equal treatment in deflating national income by population. For example, should some children be treated equally as of adults? As consumers, they could be treated as being the equivalent of half an adult. But there are some kids who do consume more than adults. This problem is not important if the population of children does not change markedly over time.

7. The Issue of Real Income
Another problem relates to what to consider as real income flowing to persons. If national income is divided equally, the share that goes to everybody measures income per capita.
This means that people get their share of consumption goods and services, as well as additions to wealth such as ovens, factories, etc, which are not real income in themselves but stores of income.
A solution to this problem would be to treat only consumer’s expenditures and government expenditures.
With government expenditures, a problem arises. While some government expenditures such as health and education may be real income, other parts such as national defense are not. It has been argued that defense does not add up to economic welfare of households and should therefore be excluded.

8. Exclusion of Certain Items
Some items which form part of economic welfare are excluded in the national income estimates. The services of housewives are excluded from national income, but there is no method of putting values on work performed by them.
The national income thus become a poor measure of welfare if we argue that welfare is enhanced by the production of goods and services in the homes.

9. Issue of Leisure
Another commodity which is left out in the computation of income is leisure.
Producing a given national output with shorter working hours which increases the supply of leisure ought to represent an increase in real national product.

10. Issue of Social Costs
The conventional measure of national income does not take into account social costs such as:
exhaustion of natural resources,
pollution of the environment,
psychological disadvantages of changing the traditional way of life

11. National income/output of ghana
Topic Two
National income/output of ghana

12. Development of National Income Account in Ghana
National income accounts in Ghana have traditionally been based on the expenditure approach, because of the lack of suitable data on the output of many producing units and also on income flows for the economy.
An attempt has been made to construct national income from the production and income side / (Brown (1972), and Singal and Nartey (1971)

13. Cardinal (1931) Estimates of the National Income
Sir A. W Cardinal made the first attempt in 1931 to estimate the national income in Ghana.
His estimates were for the financial year 1930/31 and he tried using production approach. His estimates are in Table 3.1

14. Table 3.1 Abstract of Cardinal’s Estimate of National Income of the Gold Coast in 1930
Productive Agency
Value in £
External and Internal Trade
30, 556, 757
Liberal Profession
2,557,906
Agriculture and Forestry
18,509,398
Fishing
1,983,000
Meat Trade
2,397,643
Mining
697,877
Motor Industry
1,853,216
Municipal Revenue and Wages
25,000
Total National Income
58,809,993

15. Omaboe (1960) Estimates of the National Income
Cardinal’s estimates for 1930 have been revised by Omaboe (1960) who argued that there was an over-estimation of national income by about 22 million. The estimates by Cardinal involved double counting, for as Omaboe puts it, “one wonders whether his estimate is a value added or gross output”. Omaboe’s revised estimates which are also based on the product approach are presented in Table 3.2
The breakdown of Omaboe’s revised estimates is more detailed than the attempt by Cardinal. Cardinal considered eight sectors whilst Omaboe disaggregated the economy into eleven sectors with the Agriculture and Forestry sector sub-divided into five sectors.

16. Table 3.2 National Income in 1930 (Omaboe’s Revised Estimates)
£’000
Agriculture and Forestry
Export products (fOO)
6,995
Food crops for local consumption
9,650
Forest produce for export
341
Forest produce for local Consumption
6,747
Livestock
393
Fishing
1,983
Transport, Communication Distribution
5,667
Minerals
1,956
Buildings and Construction
500
Ownership of Buildings
250
Domestic Services 50
Missions
Banks, Insurance and Other Profession
Government
2,258
Miscellaneous
1,000
Total GDP
38,390

17. Estimates from 1957 Economic Survey
Some official series involving all the three approaches of estimating national income (product, expenditure and income) were made for the years by the Central Bureau of Statistics ( the then Statistical Office) in 1958.
The income and expenditure series of this paper in current prices were published in 1957 Economic Survey. The 1950 and 1957 are given in Table 3.3.
The series break down income into wages and salaries, gross profits of companies, operating surplus of boards and corporations, government income from property, rent, cocoa farmers and brokers incomes, miscellaneous incomes. The expenditure breakdown follows the traditional methods of estimating national income.

18. Estimates from 1960 Economic Survey
With the publication of the 1960 Population Census, the higher levels of income made it necessary to revise national income estimates. The 1960 Economic Survey published revised estimates of expenditure. Columns (1) and (2) of Table 3.4 present new estimates for 1957 and 1960.

19. Table 3.3 Ghana National Income and Expenditure, 1950 and 1957 in current prices (£’000)
Private Consumption
145,001
247,969
Public authorities’ current consumption on good and services
(a)Central Government
6,542
21,967
(b) Local authorities
1,731
4,500
Gross Domestic Capital formation
Fixed Capital
16,857
36,840
Change in stock of exports
4,038
-6,467
Change in Stock of imports
1,521
-690
Net investments from abroad
20,079
-14,433
Gross national expenditure
195,769
289,416
Less taxes
-7,954
-18,845
Subsidies
114
178
Gross national expenditure at factor cost
187,929
270,749
Income
Wages and salaries
26,185
61,291
Gross profits of companies
13,740
16,291
Operating surplus of boards and corporations
21,829 -
Government income from property
10,687
18,570
Rents
2,342
4,753
Incomes of cocoa farmers and brokers
30,061
30,007
Miscellaneous incomes
89,362
145,160
GDP
195,206
275,991
Net income from abroad
-6,277
-5,242
GNP

20. Estimates from the 1961/62 National Household Expenditure Survey
The 1961/62 National Household Expenditure Survey provided data for re-appraisal of existing national income estimates. Dorothy Walters, a social accounting expert prepared new series of the national income accounts based on the survey using both the product and expenditure methods for the period 1955 to Table 3.4, columns (3) and (4) provides Walters’ estimates for 1957 and 1960 for comparison with the estimates by the Central Bureau of Statistics (CBS). Walters’ estimates tend to be lower than the estimates provided by CBS which reflects the inadequacies in the data used.

21. Table 3.4: National Expenditure and Product Estimates 1957 and 1960: Cbs and Walters Estimates In Current Market Prices (£ Million)
CBS
WALTERS
1957
1960
Expenditure
Private Consumption
346
393
291
359
Government Consumption
34.4
49.1 33 48
Gross Domestic capital formation
53.4
105.9 56 96
Change in inventories
-0.4
+10.0
-6.0 11
Exports
116.2
145.6
123
Imports
-109.3
-147.4
-107
-148
Gross domestic product
440.3
565.5
363
469
Net factor income from abroad
-20.8
-23.5 -3 -5
GNP
419.5
533.0
360
464
PRODUCT
Cocoa production - 30 45
Cocoa marketing 14
Agricultural exports and others 1 3
Food production and distribution
128
139
Forestry and sawmilling 17 26
Mining 22 21
Manufacturing 5 9
Construction, private 13 18
Industries, other private 57
Rent (net),personal&household services 43
Government enterprises&public corporation
General government 24
Residual
GDP at market prices

22. Brown’s Estimates of the National Income
Another revision of the national income was made by Brown (1972). Brown’s major contribution to the national income estimation was his derivation of the national income using the income approach.
Brown found a discrepancy between Public Finance Accounts and the National Accounts in respect to Government Consumption Expenditures. He thus had to revise the estimates of the government consumption basing the estimates on published public finance data.

23. Singal and Nartey (1971)
Singal and Nartey’s estimates of the national income were the first detailed estimates by industrial origin. The economy was divided into 14 sectors and estimates of output, intermediate products and the value added are made for each sector.
The 14 sectors include: (i) Agriculture, (ii) Forestry , (iii) Fishery, (iv) Mining and Quarrying, (v) Manufacturing, (vi) Electricity, (vii) Construction, (viii) Wholesale and Retail Trade and Restaurants and Hotels;
The rest are: (ix) Transport, Storage and Communication; (x) Banking and Insurance, (xi) Real Estate and Business Services,(xii) Social, Recreational and Related community services, (xiii) Personal, household and private Non-profit services to households, (xiv) Producers of government services

24. Economic Survey (1969)
Brown
(1972)
Singal & Nortey
(1971)
Singal and nortey (1971)
Brown (1972)
Private consumption
1,463
1,198.5
Agriculture&livestock
440.0
Wages
1347.5
Government consumption
363
171
285.3
Cocoa
184.4
Incomes from property and enter-prise
187.6
Forestry and logging
63.4
Taxes on Production and Consumption less subsidies
211.6
Gross domestic fixed consumption formation
224
186.8
Fishing
18.4
Depreciation
128.3
Changes in inventories 2
Mining and quarrying
42.1
Exports
269
369
396.1
Manufacturing
213.9
GDP
1875.0
Electricity
16.8
-39
Imports
-354
369.5
Construction
72.9
836.0
2067
1,875
1,700.5
Distributive trade
228.1
-128.3
Services
353.5
1707.7
Net factor income from abroad
-50.3
Transport and Communication
62.6
GNP
2028
1,836
1,649.9
1700.2
-109.6
1649.9
NNP
1,707.7
1,540.3
1540.3

25. The computation of national income accounting in ghana
Topic Three
The computation of national income accounting in ghana

26. Who does the accounting in Ghana?
The Ghana Statistical Service
Mandated to undertake the exercise at least once a year. In recent times the GSS provides quarterly estimates of the GDP. (

27. How is this done? There are three main approaches: Income approach
Product approach
Expenditure approach
In Ghana, two approaches – output and expenditure – are used although the expenditure approach tends to be used most.

28. How it is done? Cont’d
The output approach used in Ghana measures the value of goods and services produced, in terms of output, within the different sectors of the economy:
Agriculture
Industry
Services

29. How it is done? Cont’d (Output Approach)

30. How is it done Cont’d (Expenditure Approach)
The expenditure approach measures the value of goods and services produced, in terms of expenditure, by the various institutional sectors:
Households
Government
Financial
Non-financial and non-profit institutions serving households
To these are added net exports (X – M)

31. How is it done? Cont’d (Expenditure Approach)

32. References