Gathering and presentation of issues by:

Feraidoon Rasteh

An overview of the process identifying and

assessing data sources for compiling quarterly

expenditure-based GDP estimates

An overview of the process identifying and

assessing data sources for compiling quarterly

expenditure-based GDP estimates

Equations and identities which exist in all of the economies

and this reality that different relationship exist between the

factors and variables of an economy generates a potentiality

that makes many estimations posible.

Many sophisticated handbooks and manuals are introduced

and recommended by international organizations. National

accountants, while using these recommendations, should be

aware of the status of their country and the kinds of available

data in their country.

Considering the statistical and economic status of an economy,

the factor of art becomes important in estimation works.

So we can say for the estimation works in an economy

including quarterly national accounts, what an accountant

needs, is: Knowledge, experience, and art.

One of the basic identities of an economy is that the total

supply would be equal the total demand.

Or:

Total supply of goods and services = Total uses of goods and services.

So, the compilation of supply and use tables in an economy

will provide a set of useful information at the outset of many

estimations, including QNA.

Referring the supply and use tables, the goods and services

account as introduced in Eurostat handbook and system of

National Accounts, is just a very basic frame work

representing supply and uses in an economy. This account is

recommended to be made before the compilation of QNA.

A pedagogical FRAME WORK OF THE GOODS AND SERVICES ACCOUNT, IS shown

here:

 Intermediate consumption

  1883

  Output

 3604

Final consumption expenditure 1399   Imports of goods and services 499

Gross capital formation 414   Taxes on products 141

Gross fixed capital formation 376   Subsidies on products(-) -8

Changes in inventories 28      

Acquisitions less disposals of valuables 10      

Exports of goods and services 540      

Total uses 4236   Total resources 4236

Uses Resources

According to the goods and services accounts:

Total supply = Total uses

Output + Import = Intermediate consumption + Final consumption + Gross

capital formation + Exports

Output – Intermediate consumption = Final consumption + Gross capital

formation + Exports – Imports

Production based GDP = expenditure based GDP

Compilation of QNA requires a lot of statistical information,

referred to as "basic statistics" or "basic data".

These statistics vary considerably in different countries.

This is due to, availability of suitable administrative data, the

resources available to collect statistics, institutional

differences, geographical differences and the composition and

size of the economy.

At the goods and services account, presented above, the final

consumption expenditure constitutes the households,

Nonprofit institutions serving households and government

final expenditures. In respect of Gross fixed capital formation,

some changes and improvements are introduced in the

Eurostat handbook 2013 and SNA 2008.

Considering the Eurostat handbook 2013, SNA2008, and IMF

manual 2001, there are no differences in concepts between the

Annual National Accounts and Quarterly National Accounts.

There are lots of changes and improvements in SNA1993

compared to SNA1968, but SNA2008 has only moderate

improvements in some parts, compared to SNA1993.

One of the most important improvements in Eurostat

handbook 2013 and SNA 2008 is in the field of assets. In this

part, some of the concepts of gross capital formation and

specially fixed assets have changed. It seems that the countries

should consider also the new concepts where estimating their

QNA.

One of the main improvements in respect of the fixed assets is

the introduction of the concept of “intellectual property

products” and substituting this concept for the “intangible

fixed assets”. There are other new changes in some concepts

related to gross capital formation which should be considered

where compiling quarterly expenditure-based GDP estimates.

Intellectual property products are considered in both eurostat

handbook and SNA 2008 as a third kind of products mainly

instead of the intangible fixed assets.

They are products over which owner ship right can be

established. The value of these products should also be

estimated in QNA. They should be presented under the

headline of gross fixed capital formation, on the left side of

goods and services accounts. More information about the

intellectual property products in the following slide.

Intellectual property products

Examples of intellectual property products are the results of research

and development, mineral exploration and evaluation, computer

software and databases, and entertainment, literary or artistic

originals. They are characterized by the fact that most of their value

is attributable to intellectual endeavor.

They can be described in general terms in the following way.

Intellectual property products are the result of research,

development, investigation or innovation leading to knowledge

that the developers can market or use to their own benefit in

production because use of the knowledge is restricted by means of

legal or other protection.

Other components of gross fixed capital formation that have

been revised in the upgraded handbooks, are land

improvements, ICT equipment, and weapons systems.

For the estimation of fixed assets where compiling QNA, these

components should also be considered.

The following there slides make the above fixed assets more

clarified.

Land improvements

Land improvements are the result of actions that lead to major

improvements in the quantity, quality or productivity of land, or

prevent its deterioration. Activities such as land clearance, land

contouring, creation of wells and watering holes that are integral to

the land in question are to be treated as resulting in land

improvements. Activities such as the creation of seawalls, dykes,

dams and major irrigation systems which are in the vicinity of the

land but not integral to it, which often affect land belonging to

several owners and which are often carried out by government,

result in assets that are to be classified as structures.

ICT equipment

Information, computer and telecommunications (ICT)

equipment consists of devices using electronic controls and

also the electronic components forming part of these devices.

In practice, this narrows the coverage of ICT equipment

mostly to computer hardware and telecommunications

equipment.

Weapons systems

Weapons systems include vehicles and other equipment such as

warships, submarines, military aircraft, tanks, missile carriers

and launchers, etc. Most single-use weapons they deliver, such

as ammunition, missiles, rockets, bombs, etc., are treated as

military inventories.

However, some single-use items, such as certain types of ballistic

missile with a highly destructive capability, may provide an

ongoing service of deterrence against aggressors and therefore

meet the general criteria for classification as fixed assets.

Considering the account of inventory changes, some

clarifications have been done in upgraded handbooks. These

are mainly about the work-in-progress and military

inventories.

Work-in-progress is treated as inventory change except in

situations that should be recorded as fixed capital formation.

These are discussed below.

Work-in-progress

Work-in-progress consists of output produced by an enterprise

that is not yet sufficiently processed to be in a state in which it is

normally supplied to other institutional units. Work-in-progress

occurs in all industries, but is especially important in those in which

some time is needed to produce a unit of finished output, for

example, in agriculture, or in industries producing complex fixed

assets such as ships, dwellings, software or films. Work-in- progress

can therefore take a wide variety of different forms ranging

from growing crops to partially completed film productions or

computer programs.

Work-in-progress must be recorded for any output that is not complete at

the end of the accounting period. This is a particular problem for output

taking a long time to complete, such as construction. The shorter the

accounting period, the more important work-in-progress is likely to be

relatively to finished output. In particular, it is likely to be more significant

for quarterly accounts than annual accounts, if only because the production

of many agricultural crops is completed within a year but not necessarily

within a quarter. The only exceptions to recording incomplete work as

work-in-progress are for partially completed projects for which the

ultimate owner is deemed to have taken ownership, either because the

production is for own use or as evidenced by the existence of a contract of

sale or purchase. In this case, it will be considered as fixed capital

formation.

Work-in-progress on cultivated biological resources

Work-in-progress on cultivated biological resources consists of

output that is not yet sufficiently mature to be in a state in which it

is normally supplied to other institutional units. In the present

context it is necessary to distinguish single-use plants, trees and

livestock that produce an output once only (when the plants or trees

are cut down or uprooted or the livestock slaughtered) from trees

(including vines and shrubs) and livestock that are used repeatedly

or continuously for more than one year to produce outputs such as

fruit, nuts, rubber, milk, wool, power, transportation and

entertainment. Next

Work-in-progress should be recorded for single use resources. For

repeat yield resources, being cultivated on own account, or under an

agreed contract with another unit, the growth is counted as fixed

capital formation and so excluded from inventories. Any remaining

cultivation of resources with repeat yields should be included in work-

in-progress. This may be the case for nurseries and breeders of race

horses or other special animals, for example.

Military inventories

Military inventories consist of single-use items, such as

ammunition, missiles, rockets, bombs, etc., delivered by

weapons or weapons systems. As noted above in the

discussion of weapons systems as fixed capital, most

single-use items are treated as inventories but some types of

missiles with highly destructive capability may be treated

as fixed capital because of their ability to provide an ongoing

deterrence service against aggressors.

Considering the basic concepts is necessary for both ANA and

QNA estimations.

The above concepts are related to some aspects of final

demand. GDP by type of expenditure shows the final demand

for goods and services and so, is particularly useful for

economic analysis.

Among the components of final demand, the portion of

households is more important. Household final consumption

expenditure is usually the largest component of GDP by

expenditure. For this account, the main sources of data, are

household surveys, and surveys of retailers, service providers,

and value added tax (VAT) systems.

Also, data on the production and foreign trade in consumer

products can be used to derive estimates by commodity flow

methods.

Business surveys of retailers and providers of consumer

services are a common data source for household consumption

at current prices. Many types of retailers and almost all

services are fairly specialized.

Supermarkets and department stores sell a wide range of

goods, so that collecting product breakdowns for these stores

is desirable.

If product mixes are stable, satisfactory quarterly data by

product can be estimated by using total sales of a retail

industry as an indicator for the benchmark values of sales by

product.

A value added tax (VAT) or sales tax system may be able to

provide data on sales by type of enterprise. Such a tax system

may also divide sales into different product categories if

different tax rates are applied.

It is necessary to identify which sales are indicators of

household consumption, among the different sales by retailers

and consumer services. The systems used to collect other

taxes, such as taxes on car repair, window cleaning, special sea

foods or tobacco, may also be a potential source of

information.

Some countries conduct continuous household expenditure

surveys. If the results are processed on a timely basis by

quarter, they could be useful indicators for QNA. In this case

the problem of some small or sensitive items and some

durable products should be considered.

The expenditure data in such cases may not be clear in

household expenditures. Behavior of respondents is important.

On the other hand, household surveys ensure good coverage of

purchases from informal, small-scale retailers and service

providers. These are difficult to cover in business surveys, but

the purchaser has no reason to understate this expenditure.

This is favored in developing and transition economies

because they cover purchases from informal activities. In

countries with small informal sectors, business surveys may be

preferred. In this case there will be a decrease in collection

cost and delay.

We can have some other useful indicators for some of the

components of household consumption for QNA.

This situation happens, where there are a small number of

large suppliers in an economy. Good information can

sometimes be collected from these suppliers, specifically for

QNA. Some examples are supply or sales to residences of

households of electricity and gas, sales of some kinds of

transportation services, sales of communication services,

gambling services, sales of water and etc.

We can conduct continuous household expenditure surveys in

our country, but use the above indicators as complementary

information also.

In this case, we can lower the number of consumer products

investigated in the surveys and lower the investigation cost.

Let’s pay attention to a situation: estimation by indicators from

retailers and service providers’ may contain expenditure by

residents when abroad, and expenditure by nonresidents while

in the country. In this case an adjustment is needed. Balance of

payments statistics, if available on a quarterly basis can help

us in this respect.

Retailing investigation for the quarterly estimation of

household expenditure will be fine when the informal retailing

is not important in the country. When a significant part of

retailing is informal, surveys of retailers will not have

complete coverage, so household expenditure surveys, or the

commodity flow method can provide better quarterly

estimation of consumer products.

For the consumption of dwelling services, volume indicators

can be used. Using a volume index on the basis of the number

of dwellings, or a proxy index based on the population change,

will be fine. Separate calculations by the area of location and

types of dwellings will improve the estimations.

For some services such as insurance, education and health, the

relevant indicators may be obtained from government

regulation.

Motor vehicle regulation on the other hand may provide

indicators for the volume of vehicle purchases. Purchases of

cars and other light vehicles, from businesses and government

can be included.

Other administrative data can be used as indirect indicators.

For example, number of divorces as a potential indicator for

legal services, total numbers of cars and road accidents for

vehicle repairs.

Considering the government final consumption expenditure

Government accounting data are often available on a monthly

or quarterly basis. The most important need for QNA is to

have expenditures classified by economic type. That is:

consumption of goods and services, capital formation, other

expenditures, and data on offsetting sales. Even if not

published, the data may be available on request.

Government accounts are traditionally prepared on a cash

basis. Their timing can be determined by political or

administrative concerns.

Accrual accounting has already been introduced by some

governments, and the IMF manual of Government Finance

statistics recommends accrual accounting.

The scope of government consumption and general

government output differ in that government consumption is

equal to:

general government nonmarket output;

less own account capital formation included in output;

less any sales and fees recovered;

plus purchases that government provides free to households;

without processing.

Final consumption expenditures by Nonprofit Institutions Serving Household

Data for some larger institutions may be published or available

on request. Governments may be a good source of statistical

indicators if they monitor or support these institutions.

Balance of payments data may be an important indicator in

countries where foreign aid is a major source for these

institutions.

Gross fixed capital formation

Annual and quarterly surveys of capital expenditures by

businesses are preferred sources of capital formation data, but

this can be very expensive on a quarterly basis.

Where a VAT system requires capital and intermediate

purchases to be split, a useful indicator of capital formation

can be obtained.

Own account production of capital can be important in some

cases, including construction, computer software and

entertainment works. These can be hard to include other than

directly in surveys.

In many countries, construction requires permits, or

construction licenses from local or regional governments. The

permit system can be used as a source for estimates of

construction in the national accounts.

Speculative construction raises special issues regarding

valuation and timing. Speculative construction is regarded as

inventories of work in progress.

Surveys of builders or building permits, or construction

licenses can be designed. Extra information would also need to

be collected to separate speculative constructions.

Construction in rural areas in developing countries is often

carried out by households on their own account, and made

with their own labor, outside the scope of official permits.

A household survey may provide information on the numbers

of households involved and the cost of materials. Labor cost

can be estimated according to wages for similar work in the

local market.

Measures of the total supply of building materials to domestic

market may be helpful in some respects.

It will be equal to: Output + Imports – Exports.

A lag factor may be included. From factory and customs

frontier, until they are incorporated in construction.

The advantages of the building materials method are the ready

availability, and data inclusion of informal and unapproved

work. Here the limitation is that it assumes a stable

relationship between building materials and output. Preferably

this method would only be used quarterly.

Equipment

Four sources for measuring equipment.

1. Survey data on supply of capital goods.

2. Survey data reported by the purchasing businesses.

3. VAT data on purchases of capital goods, where indentified

from intermediate goods.

4. Registration data from government.

Supply = value of domestically produced capital goods +

Imported capital goods – Exported capital goods.

Deductions should also be made for those used for

intermediate consumption (for repairs), final consumption,

added to inventories, and company cars sold secondhand to

households.

Like construction, government finance data could be used to

obtain government capital formation of equipment, and then a

private total could be calculated as a residual.

Other fixed capital formation

The estimation of computer software is easier by supply data.

Demand data are complicated because all businesses are

involved in using software.

Supply = Domestically software developing + Imports –

exports.

Need to be aware that the above data, have a limitation,

because softwares are mostly for household consumption.

Where own account developments are important, data should

be collected in surveys.

Indicators for other intellectual property products are less

commonly available. If significant a survey could be

considered. In some cases, administrative requirements for

copyright registration or mining exploration permits can be

used as an indicator. Even in those cases, the timing of

registration or license can differ substantially from the time of

activity.

For the gross fixed capital formation on cultivated fixed assets

or biological resources, the data are less commonly available.

It seems that one suitable indicator can be determined from the

agricultural surveys, and considering the past experiences to

get a ratio of this part of fixed capital formation to the rest of

it. Then using the ratio for the estimation of quarterly value of

referred fixed capital.

Acquisitions less disposals of valuables

Valuables are mainly purchased by households.

Households may not express their purchases in this respect.

A suitable VAT system can provide a fine indicator for the

estimation of household purchases.

Only sale of valuables by households to units except

households may be included and asked in the household

expenditure surveys.

Changes in inventories

Inventories consist of finished goods, work in progress, goods

for resale, raw materials, and auxiliary materials.

Work in progress is also part of output, but is harder to

quantify than finished goods, because the product is

incomplete.

A ratio of the costs performed in the quarter to the total cost of

the work can be estimated.

Inventory change represents the difference between the total

demand, which is the sum of other components of GDP

expenditure, and total supply.

Without inventory change, the expenditure estimates would

show demand, not production.

So, one way for the estimation of inventory change is the

residual approach. This will be possible if there is a complete

measure of GDP from the production approach and estimates

are available for all other expenditure categories.

In practice, attention can be confined to those components of

inventories that are important. For instance, quarterly surveys

could be limited to miners, manufacturers, wholesalers, and

retailers.

Value of inventory changes can generally be better calculated

with higher frequency data.

Higher frequency data reduce the possibility of uneven price

and volume movements within the period.

If monthly data are available, the calculation should generally

be done on a monthly basis for use in quarterly estimates.

These factors all need to be assessed in light of each country’s

condition.

Work in progress becomes more important in QNA.

If the work in progress is own account or the owner of the

work is determined by contract, it will be considered part of

the gross fixed capital formation, otherwise it will be

inventory change. It may be possible to introduce a ratio from

past experiences in this case and specify the categories.

Exports and Imports of goods and services

Countries that compile QNA data, typically have a well

developed system of trade and balance of payments statistics

that produce quarterly data on trade of goods and services.

Merchandise data are derived from customs records, surveys

of trading enterprises, or both. Services data are typically

derived from specific surveys, administrative systems, and

international transaction reporting systems.

Peace and progress with you country.

Thank you

Good luck with you.