Vj = Gross industrial output (Yj)- Sum of all the intermediate inputs
used by the industry (
all i Ri )
= Yj(1 - intermediate - input ratio (mj))
= Yjvalue - added ratio (vj).
Needless to say, mj = all i Ri/Yj and vj = 1 - mj.
Basic Philosophical Principles
The ASHSTAT, as envisioned in the COE Project, presents a systematic set of "statistical facts," and, as such, will form an important ( indispensable ) basis for simple descriptive analysis of the loci of national economies. Underlying the development of social accounting has been the concept of the nation state as an essential unit of observation. Technically speaking, the basic unit of observation can be much narrower or even wider, as the case may be. Nonetheless, the notion of a nation has served as the most important and essential foundation on which macro economic accounting has been built upon.
Another crucial, basic methodological position that has been adopted throughout by national-income accounting is that the economic evaluation of any activities shall be made on a market basis. Any activities which are not directly under the jurisdiction of the market shall therefore be "imputed"( assessed artificially ) by referring to some kind of shadow prices which are supposed to approximate the valuation by market forces ( if the latter had been in operation for the activity in question ). Illustrative examples of such imputation may be taken from current practices, for example, in the estimate of the economic services rendered by private residential housing or of the value of agricultural products which are set aside for self-consumption.
Units of Observation
In order to ensure easy access to and convenient use of the database, the COE Project proposes that units of observations be standardised as much as possible. For example, the adoption of the western calendar, metric measures, and monetary denominations of the post-WWII period seems well warranted. In all other cases where there is reason not to follow the standard rule, explanatory notes, together with an appropriate conversion table, should accompany the statistics.
A newly emerged nation on the eve of industrialisation invariably realises the need to standardise units of measurement. The speed and ease, and virtual acceptance by the public, of standard measuring units reflects the effectiveness of political leadership of the ruling government in a newly emerged nation state. It also is a de facto sign of the integrity of the national economy.
Historical Meaning of Industry-cum-commodity Classifications
One is to be reminded of the fundamental problem of classifications of any kind in dealing with historical time series, i.e. they are subject to unceasing changes over time. In fact, these changes are at the heart of the developmental issues and cannot ( and should not ) be neglected. For obvious reasons, old categories may disappear while entirely new ones are introduced as time goes on. The transformations pose a serious headache for economic historians, since, while it is not sensible to stick to a classification scheme designed for a certain point in time, one still needs a standard format to make meaningful comparisons. But it is precisely here that researchers come to direct contact with the motive forces of economic development.
A practical solution to this difficult ( and insoluble ) problem is to prepare a modified version of the standard scheme together with a converter between the two, being accompanied by full explanatory notes as to the underlying transformations of the economy.
In any event, the change presents a challenge for practical statisticians who wish to construct meaningful, comparative time-series statistics. From the historian's viewpoint, however, the need for such changes is a faithful indicator of the force of transformation at work, and therefore the existence of such an indicator should be valued highly and exploited as much as possible.
To give a simple illustration, one often encounters in the historical source materials of a developing society a category called "miscellaneous," which seemingly represents an insignificant item ( be it a commodity, an industry, or an occupation ). The value of this category may even look questionable since it is a hodgepodge of items all of which were regarded ad of minor value either in quantity or in value at the time of the compilation of the statistics.
From the point of view of scholars interested in economic changes, however, the category may represent a source of extraordinary value. For instance, the "miscellaneous goods" were a very important source of foreign earnings in the early phases of Japanese industrialisation, as they included contained valuable exportables such as matches, toys and some other small items of seemingly little significance. Moreover, the category may contain some items which may later on prove to be highly important ( in some sense ) in the life of the economic community. Certain items in the chemical industry, for instance, were often labelled as "miscellaneous" in the nineteenth century sources partly because the chemical industry had not been firmly established as yet. But the industry later turned to be such a growing sector of the economy that it needed a separate classification of its own.
By the same token, one notes that the historical records of the mining industry often contain valuable information on the early activities of manufacturing, as it was often essential for the mines, which were generally located in far-away, often mountainous locations, to have machine shops at hand in order to engage in maintenance and repair services. Mining must have contributed much more than usually believed to the early development of manufacturing capabilities of the so-called advanced, industrialised countries, especially in the late nineteenth and the early twentieth centuries.
Speaking of changes in industrial structure, one cannot possibly neglect the importance of the rise of the tertiary sector. This point, in fact, is a repetition of what was recognised centuries ago by Sir William Petty. Nonetheless, this phenomenon causes a serious problem for contemporary statisticians, since the statistical documents of the service industry leave much to be desired. In addition, there are certain conceptual difficulties in measuring some important economic concepts such as labour productivity.
Reference Years in the Database
Several reference points will be needed in constructing historical time series, for instance, in computing various index numbers. For this purpose, it is suggested that the year 1960 be adopted as a post-WWII reference year, as the project needs a reference point at the earliest possible date after WWII to serve as a connecting point of pre-and post-WWII series. The consensus judgement is that "normality" had been re-established by then.
If 1960 is too early for some countries ( such as Indonesia, which was still struggling with political disorder then ), however, a later year ( say, 1970 ) may have to be used as an exceptional, unavoidable measure.
It is suggested, on the other hand, that a short term of 1934/36 be adopted as another reference point in the pre-WWII period, since the world economy found itself in relative stability during these three years. Another, earlier reference year may be 1913, which was a good year in business shortly before WWI.
Undoubtedly, however, the appropriate reference year may vary from one variable to another; e.g. peaks and troughs do not always coincide between them. The choice of the reference year is little more than a matter of convenience; one must have base year( s ) in order to synchronise all the indices included in the project.
Missing Values
Some old documents are often marred with missing observations, due sometimes to measures to protect privacy, to the negligence of the surveyor, to the loss of original survey, or simply to deficient information. As a matter of basic principle, the COE Project endeavours to make all the time series continuous without missing data. In case observations for some years are lacking, the utmost effort should be made to remedy the deficiency, ideally by direct estimation of the corresponding value, but alternatively with the help of some working assumptions ( or hypotheses ), e.g. the variable in question is complementary to another commodity whose data are available, and demand for the former moves more or less parallel to that for the other. If the worst comes to the worst, the missing spot may have to be filled by simple interpolation. Whenever some such measures are taken, a record needs to be kept, spelling out the method of estimation and the reason( s ) why it has been adopted.
Value Added
The concept of value added is essential in national income accounting. This is simply because one wishes to arrive at the aggregate value of newly produced goods and services for the year while avoiding any double counting. The domestic product is the summation of all the value added records by industry for use in a region ( a nation, for instance ), net of intermediate transactions. As an economy develops, the network of economic agents is expanded so that inter-industry transactions are repeated many times before the final product is delivered to its end users. Hence, the degree of economic maturity of a society may be measured by the higher degree of "round-aboutness" in production. Put another way, the input-output table of the economy becomes increasingly more "congested" as the greater number of matrix elements take non-zero values ( Torii 1979, ch. 10 ).
Value added of an industry j (Vj) may be computed quite easily so long as one is equipped with all the basic data sources, i.e.Vj = Gross industrial output (Yj)- Sum of all the intermediate inputs
used by the industry (
= Yj(1 - intermediate - input ratio (mj))
= Yjvalue - added ratio (vj).
Needless to say, mj =
The computation of aggregate value added is facilitated if one may make use of the IO table, since the latter easily provides information on inter-industry transactions. As one goes back to earlier days, however, such information becomes increasingly scarce. Under such a circumstance, one may have to resort to either second- or third-best alternatives, e.g., estimate intermediate input rates for selected bench-mark years where detailed production statistics are available, or estimate missing intermediate input rates by interpolations.
An important, and yet difficult problem related to the estimation of value added products is the calculation of the prices of the latter, which need to be derived by some artificial measures. A widely utilised method is that of "double deflation;" namely, the price of value added products is estimated as
(Yj -
where Y and y stand for total nominal and real outputs ( in value ), respectively, and R and r likewise for raw material and intermediate input in current and constant prices, respectively.
Flow and Stock
It is desirable, if possible, to construct the series of capital stock as of year t ( say Kt ), in addition to those of capital formation in the year t ( It ), both of which are of course related to each other as
It = Kt - Kt-1.
The stock variable embodies the cumulative effects in value of all the social and economic activities which have preceded it. For the same reason, it also affects the present decision on how much to invest and what project to invest in.
By the same token, a distinction should ideally made between the population and labour force ( stock concepts ) and statistics on man-days and man-hours ( flow concepts ). In the case of labour statistics, the flow concept gives better representation of the quality of life, as it is related closely to the amount of leisure time which can be allotted in daily living.
The statistics of capital stock are not easily available because their estimation is time-consuming and cumbersome. Aside from the shortage of appropriate data sources, the standard of their evaluation is subject to incessant changes. In the case of labour data, by contrast, dependable flow statistics are relatively more scarce and therefore pose more problems.
The Commodity-flow Method
One could argue that a most important reason for estimating the series of industry value added ( Vj ) is to set up a foundation on which to construct expenditure statistics, since the derivation of value added components of social production, with the help of commodity-flow method, is almost tantamount to estimating both consumption and capital formation.
The method entails the project members to trade economic transactions involved in the production of goods and services from their inception ( purchase of materials, intermediate products, energy inputs, etc. ) to their final delivery ( sales either to other firms as intermediate consumption goods or services or as capital equipment, or to the disposing agents of final demand, namely households, governments, or exporters ).
In the case of a cotton textile product, for example, the domestic value output ( say, Yt ) will be adjusted first by extracting exported portions ( Xt )and adding imported goods ( Mt ) and taking note of changes in inventory ( Int ), to arrive at the estimated value of domestic consumption of the said commodity ( Ct ), so that
Ct = Vt + Mt - Xt - Int,
ignoring commodity wastes for simplicity's sake. The total domestic consumption of all the textile outputs for a particular year may be obtained by repeating the same procedure for all the goods and services transacted in the industry and summing them up. An exemplary long-term estimating work of personal consumption expenditures is given by Shinohara ( 1967 ), Volume 6 of the LTES Japan series.