Production approach GDP
2.3 GDP is a concept of value added. It is the sum of gross value added of
all resident producer units (institutional sectors, or industries) plus that part
(possibly the total) of taxes, less subsidies, on products which is not included
in the valuation of output. Gross value added is the difference between output
and intermediate consumption.
2.4 The underlying rationale behind the concept of GDP for the economy
as a whole is that it should measure the total gross values added produced by
all institutional units resident in the economy. However, while the concept of
GDP is based on this principle, GDP as defined in the SNA may include not
only the sum of the gross values added of all resident producers but also
various taxes on products, depending upon the precise ways in which outputs,
inputs and imports are valued.
2.5 Output: Output is a concept that applies to a producer unit - an
establishment or enterprise – rather than a process of production. Output
consists only of those goods and services, that are produced within an
establishment that becomes available for use outside that establishment.
When an enterprise contains more than one establishment, the output of the
enterprise is the sum of the outputs of its component establishments.
2.6 The output of most goods or services in majority of the cases is
recorded when their production is completed. However, when it takes a long
time to produce a unit of output, it becomes necessary to recognize that
13output is being produced continuously and to record it as "work-inprogress".
For example, the production of certain agricultural goods or large
durable goods such as ships or buildings may take months or years to
complete. In such cases, it would distort economic reality to treat the output
as if it were all produced at the moment of time when the process of
production happens to terminate. In any case, whenever a process of
production, however long or short, extends over two or more accounting
periods, it is necessary to calculate the work-in-progress completed within
each of the periods in order to be able to measure how much output is
produced in each period.
2.7 Goods or services produced as outputs may be used in several
different ways. Apart from certain service producers, such as financial
intermediaries and wholesale and retail traders whose outputs have special
characteristics, goods or services produced as outputs must be disposed of
by their owners in one or more of the following ways during the period in
which they are produced. Output may:
• be sold: only goods or services sold at economically significant
prices are included here;
• be bartered in exchange for other goods, services or assets,
provided to their employees as compensation in kind, or used for
other payments in kind;
• enter the producer's inventories prior to their eventual sale, barter or
other use: incomplete outputs enter the producer's inventories in the
form of additions to work-in-progress;
• be supplied to another establishment belonging to the same
enterprise for use, as intermediate inputs into the later's production;
• be retained by their owners for own final consumption or own gross
fixed capital formation;
• be supplied free, or sold at prices that are not economically
significant, to other institutional units, either individually or
collectively.
2.8 A fundamental distinction is drawn between market output, output
produced for own final use and other non-market output.
2.9 Market output: Market output is output that is sold at prices that are
economically significant or otherwise disposed of on the market, or intended
for sale or disposal on the market. Prices are said to be economically
significant when they have a significant influence on the amounts the
producers are willing to supply and on the amounts purchasers wish to
buy. Apart from certain service industries for which special conventions are
adopted, the value of the market output of a producer is given by the sum of
the values of the following items for the period in question:
(i) The total value of goods and services sold (at economically
significant prices);
(ii) The total value of goods or services bartered;
(iii) The total value of goods or services used for payments in kind,
including compensation in kind;
(iv) The total value of goods or services supplied by one
establishment to another belonging to the same market
enterprise to be used as intermediate inputs;
(v) The total value of changes in inventories of finished goods and
work-in-progress intended for one or other of the above uses.
2.10 Output produced for own final use: Such output consists of goods or
services that are retained for their own final use by the owners of the
enterprises in which they are produced. As corporations have no final
consumption, output for own final consumption is produced only by
unincorporated enterprises: for example, agricultural goods produced and
consumed by members of the same household. The output of domestic and
personal services produced for own consumption within households is not
included, although housing services produced for own consumption by owneroccupiers
and services produced on own account by employing paid domestic
staff are included under this heading.
2.11 Goods or services used for own gross fixed capital formation can be
produced by any kind of enterprise, whether corporate or
unincorporated. They include, for example, the special machine tools
produced for their own use by engineering enterprises, or dwellings, or
extensions to dwellings, produced by households. A wide range of
construction activities may be undertaken for the purpose of own gross fixed
capital formation in rural areas, including communal construction activities
undertaken by groups of households.
2.12 The value of output produced for own final use is given by the sum of
the values of the following items for the period in question:
(i) The total value of goods and services produced by household
enterprises and consumed by the same households;
(ii) The total value of the fixed assets produced by an establishment
that are retained within the same enterprise for use in future
production (own-account gross fixed capital formation);
(iii) The total value of changes in inventories of finished goods and
work-in-progress intended for one or other of the above uses.
2.13 Additions to work-in-progress on structures intended for own use are
treated as acquisitions of fixed assets by their producers. They are therefore
recorded under (b) instead of (c) above.
2.14 Other non-market output: It consists of goods and individual or
collective services produced by non-profit institutions serving households
(NPISHs) or government that are supplied free, or at prices that are not
economically significant, to other institutional units or the community as a
whole. Such output may be produced for two reasons:
(i) It may be technically impossible to make individuals pay for
collective services because their consumption cannot be monitored
or controlled. The pricing mechanism cannot be used when
transactions costs are too high and there is market failure. The
production of such services has to be organized collectively by
government units and financed out of funds other than receipts from
sales, namely taxation or other government incomes;
(ii) Government units and NPISHs may also produce and supply goods
or services to individual households for which they could charge but
choose not to do so as a matter of social or economic policy. The
most common examples are the provision of education or health
services, free or at prices that are not economically significant,
although other kinds of goods and services may also be supplied.
2.15 A price is said to be not economically significant when it has little or no
influence on how much the producer is prepared to supply and is expected to
have only a marginal influence on the quantities demanded. It is thus a price
that is not quantitatively significant from the point of view of either supply or
demand. Such prices are likely to be charged in order to raise some revenue
or achieve some reduction in the excess demand that may occur when
services are provided completely free, but they are not intended to eliminate
such excess demand. Once a decision has been taken on administrative,
social or political grounds about the total amount of a particular non-market
good or service to be supplied, its price is deliberately fixed well below the
equilibrium price that would clear the market. The difference between a price
that is not economically significant and a zero price is, therefore, a matter of
degree. The price merely deters those units whose demands are the least
pressing without greatly reducing the total level of demand.
2.16 The value of the non-market output of a producer (other than output
produced for own final use) is given by the sum of the values of the following
items for the period in question:
(i) The total value of goods and services supplied free, or at prices
that are not economically significant, to other institutional units,
either individually or collectively;
(ii) The total value of goods or services supplied by one
establishment to another belonging to the same non-market
producer to be used as intermediate inputs;
(iii) The total value of changes in inventories of finished goods and
work-in-progress intended for one or another of the above uses.
2.17 As prices that are not economically significant may reflect neither
relative production costs nor relative consumer preferences, they do not
provide a suitable basis for valuing the outputs of goods or services
concerned. The non-market output of goods or services sold at these prices
is, therefore, valued in the same way as goods or services provided free, i.e.,
their costs of production. Part of this output is purchased by households,
the remainder constituting final consumption expenditures by government
units or NPISHs.
2.18 Intermediate consumption: In the SNA, the intermediate inputs are
recorded and valued at the time they enter the production process, while
outputs are recorded and valued as they emerge from the process.
Intermediate inputs are normally valued at purchaser’s prices and outputs at
basic prices, or alternatively at producer’s prices if basic prices are not
available. The increase between the value of the intermediate inputs and the
value of the outputs is the gross value added against which the consumption
of fixed capital, taxes on production(less subsidies) and compensation of
employees must be charged. The positive or negative balance remaining is
the net operating surplus or mixed income. The definition, measurement and
valuation of outputs and inputs are, therefore, fundamental to the system.
Intermediate consumption consists of the value of the goods and services
consumed as inputs by a process of production, excluding fixed assets whose
consumption is recorded as consumption of fixed capital. The goods or
services may be either transformed or used up by the production
process. Some inputs re-emerge after having been transformed and
incorporated into the outputs; for example, grain may be transformed into flour
which in turn may be transformed into bread. Other inputs are completely
consumed or used up; for example, electricity and most services.
2.19 Intermediate consumption does not include expenditures by
enterprises on valuables consisting of works of art, precious metals and
stones and articles of jewellery fashioned out of them. Valuables are assets
acquired as stores of value: they are not used up in production and do not
deteriorate physically over time. Expenditures on valuables are recorded in
the capital account. Intermediate consumption also does not include costs
incurred by the gradual using up of fixed assets owned by the enterprise: the
decline in their value during the accounting period is recorded as consumption
of fixed capital. However, intermediate consumption does include the rentals
paid on the use of fixed assets, whether equipment or buildings, that are
leased from other institutional units, and also fees, commissions, royalties,
etc., payable under licensing arrangements.
2.20 Intermediate consumption includes the value of all the goods or
services used as inputs into ancillary activities such as purchasing, sales,
marketing, accounting, data processing, transportation, storage, maintenance,
security, etc. The goods and services consumed by these ancillary activities
are not distinguished from those consumed by the principal (or secondary)
activities of a producing establishment even though the levels at which
ancillary activities are carried out do not usually vary proportionately with the
level of the principal activity.
2.21 The intermediate consumption of a good or service is recorded at the
time when the good or service enters the process of production, as distinct
from the time it was acquired by the producer. In practice, the two times
coincide for inputs of services, but not for goods, which may be acquired
some time in advance of their use in production. A good or service consumed
as an intermediate input is normally valued at the purchaser's price prevailing
at the time it enters the process of production; that is, at the price the
producer would have to pay to replace it at the time it is used.
2.22 In practice, establishments do not usually record the actual use of
goods in production directly. Instead, they keep records of purchases of
materials and supplies intended to be used as inputs and also of any changes
in the amounts of such goods held in inventory. An estimate of intermediate
consumption during a given accounting period can then be derived by
subtracting the value of changes in inventories of materials and supplies from
the value of purchases made. Changes in inventories of materials and
supplies are equal to entries less withdrawals and recurrent losses on goods
held in inventory.
2.23 When goods or services produced within the same establishment are
fed back as inputs into the production within the same establishment, they are
not recorded as part of the intermediate consumption or the output of that
establishment. On the other hand, deliveries of goods and services between
different establishments belonging to the same enterprise are recorded as
outputs by the producing establishments and must, therefore, be recorded as
intermediate inputs by the receiving establishments.
2.24 The following types of goods and services provided to employees must
be treated as part of intermediate consumption:
(i) Tools or equipment used exclusively, o r mainly, at work;
(ii) Clothing or footwear of a kind which ordinary consumers do not
choose to purchase or wear and which are worn exclusively, or
mainly, at work; e.g., protective clothing, overalls or
uniforms. However, uniforms or other special clothing which
employees choose to wear extensively off-duty instead of ordinary
clothing should be treated as remuneration in kind;
(iii) Accommodation services at the place of work of a kind which
cannot be used by the households to which the employees
belong - barracks, cabins, dormitories, huts, etc.;
(iv) Special meals or drinks necessitated by exceptional working
conditions, or meals or drinks provided to servicemen or others
while on active duty;
(v) Transportation and hotel services provided while the employee is
traveling on business;
(vi) Changing facilities, washrooms, showers, baths, etc. necessitated
by the nature of the work;
(vii) First aid facilities, medical examinations or other health checks
required because of the nature of the work.
[To be concluded - Reproduced from CSO Publication]
No comments:
Post a Comment