1. Integrated compilation of data in current and constant prices
Robin Lynch
National Accounts in Practice – Advanced course
Luxembourg, 2-11 October 2017
THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

2. Supply Use Tables (SUTs)
GDP and its components in terms of production, income and expenditure is the first key balancing item of the national accounts
It is possible to measure GDP through three different approaches
Production, income, and expenditure

3. Production approach to measuring GDP
Each industry/ activity in an economy contributes to economic growth through the value added to the inputs it uses’ to generate output
For each activity, value added = Sales less purchases of goods and services
Sales and purchases can be measured through business survey, supplemented by administrative records

4. Income approach to measuring GDP
The income generated through the production activity consists of compensation of employees and the profits (operating surplus)
Compensation of employees and profits can be measured through survey, or tax and other administrative records

5. Expenditure approach
GDP can be measured by aggregating over all the final demands in the economy – omitting sales used by other activities.
GDP E = Household spending + NPISH spending, plus government spending + Capital formation + exports less imports
These categories can be measured through survey (HH & NPISH, Capital formation, International trade in services) and administrative records International Trade in Merchandised Goods)

6. Expenditure approach These categories can be measured through
Survey: Household spending, NPISH spending, capital formation, international trade in services and administrative records International Trade in Merchandised Goods)
Administrative records: Government spending and international trade in merchandised goods

7. Best measure of GDP It can be shown that
GDP P = GDP I = GDP E for the whole economy
But when three such large aggregates are measured and are different, it is not easy to determine which is the most reliable
The final estimate was once estimated as the average of the three independent estimates

8. Supply Use Tables (SUTs)
But laying out the transactions in goods and services in terms of individual production activities, product supply and product enables a reconciliation to be struck at an individual activity and product level
This is achieved through the Supply Use Tables
The reconciliation at detailed level enables a unique estimate of GDP to be struck, using all the information from the three approaches

9. Supply Use Tables (SUTs) - Example
To demonstrate the principles involved, an economy with no taxes, and three industries with three unique products is set out below

10. Supply Supply Total supply Products imps dom Adj Manuf 20 15 55 Dist'n
-15
Services 5 30 35
Totals 25 60

11. Use Use by activities Final demand Final dem. Total dem. Manuf Dist'n
Servs
Final Cons
Cap form
exps
Manuf. 10 5 30 55
Dist’n 20 35
GDP= P= I 15
imps
-25
GDP E 25

12. Supply Use Tables (SUTs)
The supply and use tables show that for each product supply=demand (once on same price basis – in this case purchasers’ prices)
For each activity, output less intermediate cons = value added
= income generated

13. Supply Use Tables (SUTs)
So by striking the best reconciliation possible at individual activity and product level, we can produce an estimate of GDP which reflects a coherent picture of production, income and expenditure

14. Supply Use Tables (SUTs)
The problem here is how to produce robust estimates of the input structures of activities and final demand in terms of products,
Business will not necessarily keep up-to-date and detailed records of their purchases
Spending by households will be by broad category (COICOIP) not by detailed products

15. Supply Use Tables (SUTs)
So how do we keep an annual and quarterly coherent picture of the economy for more recent periods, beyond a “benchmark year”?

16. Supply Use Tables (SUTs)
We assume that where we have no recent reliable information, input structures remain the same
This is equivalent to the kind of assumption we make when using sales data to project forward estimates of value added by industry, to create an index of Production, or an Index of Services

17. Supply Use Tables (SUTs)
How do we generate estimates of volume growth using this coherent framework based on current prices?

18. Supply Use Tables (SUTs)
We create an equivalent database of price indices in the SUT form
These prices are expressed as indices in terms of the previous year prices
So for each year, we can express the SUT elements in the prices of the previous year, using the previous year weights to aggregate individual prices

19. Supply Use Tables (SUTs)
These generate individual estimates of volume growth from the previous year to the current year
Using Paasche style price indices generates Laplaces style volume growth estimates in constant price form, which are additive
So we can produce versions of the supply-use tables in the prices of the previous year to enable reconciliation at constant as well as current prices

20. Supply Use Tables CP and KP
Exercise!