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5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000  
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Contents >> Chapter 9: The input-output framework >> Special treatments adopted in compiling input-output tables

Special treatments adopted in compiling input-output tables

9.45 The content and meaning of the tables depend also on some other aspects of compilation, particularly:

      • treatment of intra-industry transactions;
      • allocation of imports;
      • coverage of transactions;
      • valuation of transactions;
      • basic margins; and
      • taxes and subsidies on products.

There are various methods available for dealing with each of these, and several types of tables can be prepared from the same basic data.

Treatment of intra-industry transactions

9.46 Depending on the treatment of intra-industry transactions, the output of an industry can be defined in three different ways according to whether, and to what extent, these transactions are counted as part of the output.

      • The output of an industry can be defined as the total value of all flows of products produced by the establishments classified to the industry. All intra-industry flows are included as output when it is defined in this way. For example, under this definition, the output of the motor vehicles and parts; other transport equipment industry (Class 2801) would consist not only of fully assembled vehicles but also of motor bodies, engines and other components despatched from (or added to inventories by) any unit recognised as an establishment for statistical purposes. This definition of output disregards the fact that many of these components will have been incorporated in finished motor vehicles and therefore will have been counted twice. Output calculated according to this definition could be as much as twice or three times the value of finished products of the industry.
      • A second possible definition of the output of an industry confines output to products produced by establishments within the industry and sold outside the enterprise. This definition also results in some duplication because the components manufactured and sold by one enterprise are all counted separately, although they may have been used in a finished product of another enterprise in the same industry and counted again in the value of this product. Moreover, the components despatched from one establishment could be omitted entirely or counted either partly or wholly depending on whether they were used by another establishment of the same enterprise or by a different enterprise.
      • Thirdly, the output of an industry can be defined as net of all intra-industry transactions; i.e. excluding not only the transfers between the establishments in industry i belonging to the same enterprise, but also all flows between establishments in industry i belonging to different enterprises. If this definition of output is used, the input-output table is said to be net and the main diagonal of an industry-by-industry table is empty. If one of the other definitions is used the table is gross and there are entries on the main diagonal.

9.47 For 1974-75 and subsequent years, the tables generally include intra-industry flows and can be described as gross as outlined above. This means that the estimates of output can be directly compared with other information about an industry. A further consequence of recording intra-industry transactions is that the level of output is unaffected by the number of industries used (i.e. by different levels of industry aggregation). An important exception is the construction industry, in which output is measured on a net basis.

Allocation of imports

9.48 Various ways are available to record imports in input-output tables. The main ones are:

      • direct allocation of imports, which involves allocating all imports directly to the sectors which use them. In this case, all flows recorded in Quadrants 1 and 2 refer only to the use of domestic products, and consequently Quadrant 1 does not reflect the technological input structure of the industry;
      • indirect allocation of imports, which involves first recording all imports as adding to the supply of the sector to which they are primary and then allocating this supply along the corresponding row of the table to using sectors. The result is that flows in Quadrants 1 and 2 contain imported and domestically produced products without distinction. Quadrant 1 then better reflects the technological input structure of the industry and Quadrant 2 better reflects the product composition of final demand; and
      • direct allocation of complementary imports and indirect allocation of competing imports. This method involves first distinguishing between complementary and competing imports and then allocating the first group directly and the latter indirectly.

Each of these methods has advantages from an analytical point of view but each also can lead to conceptual and compilation problems.

9.49 Direct allocation of imports is appropriate for many analytical purposes. However, if substitution between imports and domestic production is known to occur, in order to allow for the probable effects of specified import replacement or substitution it would be necessary to adjust the imports table and to recalculate the industry-by-industry tables. In addition, the application of this method requires identification of the destination of each imported product. Although the proportion of imports in total supply (and therefore in total usage) for each product can be established, it may not be known for individual using sectors. Of course, it is possible to proceed if one assumes that each using sector draws on imports and domestic production in the average proportions established for the total supply of each product. In the I-O publication, tables with direct allocation of competing imports have been prepared using this assumption. The assumption was applied to detailed working tables (approximately 1,000 products and 107 industries) which were subsequently aggregated for publication.

9.50 Indirect allocation of imports is appropriate, in the sense that it will result in stable input-output coefficients, where the inputs to the domestic sector to which each imported product is primary are representative of the inputs required to produce the import domestically. Where this is not so, the method will give misleading results. For instance, if coffee (which is treated as a complementary import) were distributed with the 'other agriculture' product group, an increase in the demand for coffee would necessitate an increase in the output of the 'other agriculture' industry. This, in turn, would require an increase in the inputs to that industry as specified in the published tables unless a specific adjustment is made to the tables. It is easy to compile tables using the indirect allocation method. The only problem which has to be overcome is matching each imported product with the domestic industry to which the product is primary, or would have been primary if it were produced domestically.

9.51 The third method modifies the second to take account of complementary imports. To apply this method, it is necessary to distinguish between competing and complementary imports, so that the latter can be allocated directly to the using sectors. This distinction may appear to be obvious at first sight, but in practice it is difficult to apply. A competing import can be defined as one which is a good substitute for a domestically produced product. However, in general, this cannot be determined objectively and so is largely a matter of judgement. Moreover, each competing import has to be matched with a domestically produced product, and this also presents difficulties because there is rarely a one-to-one correspondence between domestically produced and imported items.

9.52 Complementary imports could be defined as those for which no suitable substitute is produced domestically, but determining what is a suitable substitute is largely a matter of judgement. Since complementary imports should be allocated directly, it is necessary to identify their destination, which may present some practical difficulties. However, the number of products involved is usually small, and the nature or the description of these products frequently provides sufficient guide to their probable destination.

9.53 In principle, complementary imports are those products not produced in Australia (e.g. natural rubber), but the practice is somewhat different. All imports (goods and services) for which there is insufficient information to classify to a specific industry of origin, are treated as complementary imports in the ASNA tables.

Coverage of transactions

9.54 Input-output tables record only those flows of goods and services that have been domestically produced, imported or drawn from domestic inventories during the reference period. Therefore some transactions are outside the scope of the input-output tables and so are not recorded in them. The most important exclusions are financial transactions, such as loans, interest and the purchases of securities. Other transactions have to be modified before they can be included in the tables. For instance, flows of products are commonly reported as sales and purchases, but the input-output tables should record output and usage. Output will differ from sales, and input (or usage) will differ from purchases, by the amount of inventory change (positive or negative) in both cases. Output is calculated as sales plus changes in inventories of finished goods plus changes in inventories of work-in-progress, and input is calculated as purchases less changes in inventories of materials. Changes in inventories are recorded in a separate final demand column (Q6) in the row of the industry of origin. Entries in this column refer to changes in inventories of both domestically produced and imported products, regardless of whether they are held by producers, dealers or intermediate users. Input-output tables do include some elements which are not market transactions, such as the imputed rent of owner-occupied dwellings and some home-produced food.


Valuation of transactions

9.55 The flows in input-output tables can be valued in several ways. The choice depends partly on the intended use of the tables and partly on availability of data (including the assumptions that can reasonably be made where data are lacking). The valuation conventions most commonly used are basic prices, producers' prices and purchasers' prices. These are defined as follows:

      • Basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output, minus any tax payable, and plus any subsidy receivable, on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer. However, delivery charges that are not separately invoiced are included in the basic price.
      • Producer's price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output, including any tax that is incorporated within the sales price, and excluding any subsidy that reduces the sales price, on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer, but includes delivery charges not separately invoiced.
      • Purchaser's price is the amount paid by the purchaser in order to take delivery of a unit of a good or service at the time and place required by the purchaser. It includes any transport charges paid separately by the purchaser to take delivery at the required time and place. GST paid by producers for which input credits are granted are excluded from purchasers' prices.

The difference between the cost of a product to the purchaser and the basic price receivable by the producer is composed of taxes less subsidies on products and margins such as transport and storage services, marine insurance, and wholesale and retail margins. Regardless of whether the producer or the purchaser initially pays for the margins, the concept of producer's price excludes the margins and the concept of purchaser's price includes them.

Margins

9.56 If the transactions are valued at basic prices, the margins are recorded as inputs from the appropriate sector (e.g. transport, wholesale trade) to the intermediate users or final buyers, as the case may be. If transactions are valued at purchasers' prices the value of the margins is added, along with taxes less subsidies on products, to the basic price of the good to which the margins relate. The input into the intermediate or final use category of the transport or wholesale trade sector is reduced by a corresponding amount.

9.57 Which ever method is used, a complicated estimation process will be necessary before the transactions can be valued in one of these ways. First, input and output statistics from economic statistics collections are not available on the same valuation basis. Most output statistics are on an ex-plant or similar basis, but input statistics are normally available at the price paid by the user. Second, margins apply only to those flows of products which have actually passed through the 'margin' industries. Any products delivered directly from producer to user, without intervention of 'margin' industries, are obviously unaffected by margins.

9.58 The incidence of margins can vary considerably between users, depending on the channels through which they obtain their supplies. For instance, most producers would not buy supplies to meet their requirements through retailers, while practically all households do so.

9.59 The supply of product groups containing margin products consists of two parts: that which involves the movement of goods and that which represents other (non-margin) products. Only the first of these parts (e.g. freight of goods by rail or road) is treated as margin, and this part is allocated differently depending on whether the flows are at basic prices or at purchasers' prices. The second part (e.g. railway fares) is treated as non-margin and is always shown as paid by purchasers.

Taxes and subsidies on products

9.60 The treatment of taxes on products in input-output tables creates special problems which can only be solved by the use of conventions. The concept of producers' price includes taxes on products. If transactions are valued at producers' prices, taxes on products are recorded as being paid by producers. However, taxes on products do not accrue to producers, are not levied on all products, and can vary significantly between different uses and over time, for reasons which have nothing to do with production. For instance, GST may not be payable on exports or on government purchases of some products, but it may be quite high on the same products bought for personal consumption. Therefore, if taxes on products were included in the value of products on which they are levied, the flows would not be valued uniformly and the subsequent manipulation of the tables could give quite erroneous results. This problem can be avoided by recording the product flows at the value at which they leave the producers before product taxes are charged, and showing these taxes separately from the product flows where they arise. When this procedure is adopted, the flows are valued at basic prices and this is the basis of valuation adopted in most tables in the I-O publication. In these tables all flows of products exclude taxes on products. These taxes are shown in separate rows. Taxes on products are shown as being paid by the users of the products on which the taxes are levied, except for GST paid by producers and for which input credits are granted. Other taxes on production are shown as being paid by the industry that incurred them. In tables at purchasers' prices, taxes on products are shown as paid by the producer of products subject to tax. As with margin elements, this treatment of taxes on products results in lack of uniform valuation of product flows and in the distortion of input-output relationships.

9.61 Product specific subsidies are treated as negative taxes on products, and the amounts shown in row P3 represent the difference between the two. In tables at basic prices, taxes on products are recorded as paid by purchasers. If the purchasers also bought some products which attract a subsidy, the amount of subsidy is deducted from taxes on products paid by them.


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