Regional GDP Workshop. Purpose of the Project October 6 2005 - Regional GDP Workshop Regional GDP...

Regional GDP Workshop

Purpose of the Project

October 6 2005 - Regional GDP Workshop

Regional GDP Scope

• Annual

• Current price (nominal) GDP

• By region and industry

• Using the production approach


Components of GDP

Intermediate Consumption

Compensation of Employees

Operating Surplus and Consumption of Fixed Capital

Net Indirect Taxes

Output


How to measure regional GDP

Two main approaches

1.IndirectUses a variable with a regional dimension correlated with GDP, e.g.

– employment numbers – wages paid


2. Direct• Based on direct surveying of units and

their transactions.

• Builds up GDP in the same way that the national accounts are compiled.


Issues With Direct Approach

• Units with regional dimension needed

• Complex

• Depends on data availability

• Heavy data requirements

• More expensive than alternatives

• Not particularly timely

• Still preferred method though


The Direct Approach

Direct is preferred because• It reflects national accounts methods• Allows estimation by unit• Avoids assumptions such as constant

employment to value added ratios• Allows us to compile individual

aggregates by summing source data• We have the data (AES)


What method do we choose?

• No existing economic collection is completely suitable for estimating regional GDP

• Method will be data driven• We are assessing

– What source data might be suitable– Where the gaps are– Costs of filling the gaps– The most appropriate methodological choice

Deliverables & Timing


Main Stages

Evaluation and proposed methodology

Mid-Oct 2005

Compilation begins. Update on progress to MED

End 2005

Compilation complete July 2006

Final project report drafted Sept 2006

Final project report published End 2006


Data Evaluation

• Identify potential regional GDP data (regional / economic)

• Evaluate and list characteristics

• Many economic data sources not designed regionally – but still evaluated

• Many regional data sources not on a National Accounting basis


Methodology

• Review international best practice

• European Statistical Commission (Eurostat) – also prefers ‘direct’ approach

• Concepts and classifications

• Integrate data evaluation and methodology review


Compilation

• Follow the “road map”

• Compile estimates

• Analyse and compare estimates

• Quality assessment important as there should be “something” produced

• Determine how weak areas can be improved


Final Report

• Feasibility of producing regional GDP on an ongoing basis

• Release depends on quality of regional GDP series

• Future Recommendations depend on feasibility. If not feasible, the recommendations will focus on how the series could be made feasible

Concepts & Classifications


A brief look at the main concepts

1. Statistical unit

2. Residency

3. Region

4. Industry


•EnterpriseAn ‘owning’ unit making financial decisions on behalf of the producer units.

• Kind of Activity Unit (KAU)Producer of goods and services which is classified to industries and from which financial information is collected.

• Geographic unit (GEO)A ‘location’ unit at which economic activity is carried out. Does not have financial information.

• Has employment related information. • Can be classified to region• Can be classified to industry

Statistical units


What kind of unit do we need?

• A production unit (KAU), but which can be located in a region

• We’ll call it the Local KAU


The Local KAU

• Will be estimated from the regional information given by the GEO

• Will have the same industry classification as its ‘parent’ KAU

• Must have labour and/or capital


Assumptions about statistical units

• The existence of a GEO on our business register will be considered enough evidence for us to create a local unit

• Where factors of production are identified but no corresponding stat unit exists, e.g. GEO, we will attempt to create a local KAU.


Issues with Statistical Units

– Local KAU. We don’t have one– Factors of production in one region but

producer unit in another– Mobile equipment. What to do when capital

assets move between regions– Fixed capital that spans regions– Capital intensive industries


Residency

1. Residence concept

• allocates value added to the region where the production unit is resident

• based on the physical and legal existence of a unit in a region


Residency contd …

1. Territory concept

• Allocates activity to the region where it takes place

• Reflects the activity of labour and capital operating in a region regardless of where the ‘owning’ production unit is located.


Which residency concept to adopt?

• We adopt the Residence principle.

• Allows us to build up regional GDP using the direct method.

• But …


Creation of local KAUs

• Where we identify factors of production we will establish local KAUs

• So we identify activity taking place at particular locations – a territory concept!


Issues with residency

• NZ lacks a ‘local KAU’ in its statistical unit classification so assigning residency criteria can be difficult– Assigning residency to factors of

production that move around– No ‘unit’ exists but factors of production are

present.


Special cases. Residency and Statistical Units

• Special cases involve:– Multiregional activity– Factors of production in one region but

owner/operator in another– What industry classifications do we want?– Mobile equipment. Capital assets moving between

regions– Fixed assets that cross regions such as roads– Capital intensive industries


Region

1. Propose 16 regions

• 12 regional council areas

• 4 unitary authorities

• All regions treated equally in the study

• Smaller regions a good test of feasibility


North Island


South Island


Industry

• Will test the feasibility of producing regional series by 30 industry groups

• May have to aggregate to fewer groups depending on quality and confidentiality


National Accounts published industries

Data & Methodology


Process to determine methodology

• Several potential approaches possible. Direct (bottom-up) and Indirect (top-down)

• Direct approach needs to be investigated


Direct process

• Evaluate potential data sources

• Determine data source with most potential

• No perfect data source out there. Need mitigation strategies to make data sources fit in better with regional GDP requirements


Provisional Estimate

• Unit record financial surveys (direct sources) often not particularly timely

• Recognise there is demand for timely regional GDP estimates

• Separate approach for timely ‘provisional estimates’ : lower quality, more aggregated


Annual Enterprise Survey (AES)

• Annual economic survey

• Main National Accounts source for production side data by industry


AES as a regional GDP source

• Unit data available by industry – yes

• Components of GDP – yes

• Financial information – yes

• National Accounting basis – yes

• Regional collection – no

• Meets residency condition - no


AES: residency

• Mitigation: investigate using separate unit data that to better apportion AES survey data across regions


AES: collection design mitigation

• Mitigation strategy: identify weak areas. Use alternative data sources.


AES as a regional GDP source

• Unit data available by industry – yes

• Components of GDP – yes

• Financial information – yes

• National Accounting basis – yes

• Regional collection – work around

• Meets residency condition – model


Regional Economic Indicator (REI)

• Regionalised Business Activity Indicator (BAI)

• Quarterly GST sales and purchases

• Net GST sales as proxy for GDP, many conceptual differences though

• Only released at regional level

• AES preferred


Role of Regional Economic Indicator

• Possible back-up data source where there are gaps in AES coverage, or AES sample errors are high

• Provisional estimate


Linked Employer-Employee Data (LEED)

• Links IRD administrative data with the SNZ Business Frame

• Available later this year

• Employment data (including salaries and wages) by industry by region


Role of Linked Employer-Employee Data

• Regional Compensation of Employees component (using salaries and wages)

• Means to apportion AES data

• Could also be used for regional GDP estimates where AES is weak

• Provisional estimate


Industry methodology review

• AES proposed core data source

• Gaps in coverage

• Issues with mobile capital, networks etc

• May be superior data sources for some industries

• Review of methodology at the industry level required

Regional GDP Workshop. Purpose of the Project October 6 2005 - Regional GDP Workshop Regional GDP...

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