Measuring GDP by Final Demand Approach

An Introduction

Vu Quang VietInternational Workshop on

Measuring GDP by Final Demand Approach Shenzhen, China25-27 April 2011

Definition of GDP by final expenditureCategories GDP = Data availability/indicators

Final consumption +

Households Retail sale, household survey

NPISH ?

Government Readily available

Gross fixed capital formation + Survey + data analysis

Households ?

NPISH ?

Corporations Survey

Government More or less readily available

Changes in inventories + Survey

Imports - Readily available

Exports + Readily available

Shares of components of GDP, 2009Country

Final consumption

HH GOV GCF GFCF INV Exports Imports

China 0.504 0.368 0.136 0.456 0.438 0.017 0.392 0.306

India 0.696 0.573 0.123 0.350 0.337 0.013 0.206 0.253

Indonesia 0.682 0.586 0.096 0.310 0.311 -0.001 0.241 0.213

Malaysia 0.645 0.502 0.143 0.140 0.204 -0.064 0.969 0.754

Philippines 0.844 0.739 0.105 0.146 0.146 0.000 0.317 0.308

Thailand 0.683 0.550 0.133 0.219 0.244 -0.026 0.685 0.579

Vietnam 0.733 0.670 0.064 0.384 0.348 0.036 0.762 0.886

Australia 0.737 0.557 0.180 0.283 0.283 0.000 0.195 0.200

Canada 0.807 0.588 0.219 0.210 0.215 -0.005 0.287 0.304

USA 0.883 0.710 0.173 0.136 0.146 -0.010 0.111 0.138

Supply and use table, year = t SUPPLY 1 2 3 4 5 Imports Trade &

Transport margins

Product taxes

Product supply purchr’ prices

1 31 177 5 70 22 60 15 380

2 2 2 59 2 -60 3 8

3 20 1 0 2 23

4 10 0 0 0 10

Indus. output basic prices

33 179 64 20 80 28 0 20

USE 1 2 3 4 5 Exports GCF FCE Product uses

1 7 93 30 5 23 37 40 145 380

2 4 0 2 2 8

3 1 12 1 1 2 1 5 23

4 1 9 10

VA 25 69 33 14 55 1 2

Industry output/TT 33 179 64 20 80 41 40 163

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+nSUPPLY

current prices1 2 3 4 5 Product output in current

prices estimated

1 0.94 0.99 0.08 0.87 251.3

2 0.06 0.10 0.92 69.2

3 1.00 22.0

4 0.13 15.0

Industry output curr. prices

40 200 70 22 12

USE in constant prices

1 2 3 4 5 Product output in constant prices estimated

1 0.21 0.52 0.47 0.25 0.29 239.3

2 0.02 67.8

3 0.03 0.07 0.02 0.05 0.02 21.6

4 0.01 1.5

VA 28.9 73.4 35.3 15.1 7.9Industry output 38.2 190.5 68.5 21.6 11.5

Shares/coefficients in In constant

prices

Estimation in constant prices, year = t+nSUPPLY Products

producedImports Trade &

Transport margins

Product taxes

Supply of product

1 239.3 ?

2 67.8 Data given ?

3 21.6 ?

4 1.5 ?

Total

USE Intermediate consumption

Exports GCF FCE Uses of products

1 147.9 ?

2 4.3 Data given ?

3 16.4 ?

4 1.1 ?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

Purchasers prices

Auto 100% 45% 3% 42% 145%

Tires 100% 158% 2% 156% 258%

Accessories 100% 136% 3% 133% 236%

Furniture 100% 101% 12% 89% 201%

Cereals 100% 63% 3% 60% 163%

Bakeries 100% 61% 2% 59% 161%

Beef & veal 100% 57% 3% 54% 157%

Sea food 100% 62% 3% 59% 161%

Fruits 100% 101% 13% 88% 200%

Vegetables 100% 114% 21% 93% 214%Processed fruits and vegetables 100% 62% 4% 58% 162%

Trade and transport margins in US, 2002Trade and transport Product Taxes

Crops 11% 3%Forestry 8% 13%Fishery 9% 4%Coal mining 22% 4%Crude oil, natural gas 20% 31%Processed food 8% 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 COMMODITIES 7% 4%GOODS ONLY 10% 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.

End