Input Output Framework Workshop Industry Accounts Division Statistics

Input Output Framework Workshop Industry Accounts Division Statistics Canada Fabienne Leclerc Calgary December 4, 2008 Industry Accounts Division

Outline of the Workshop • • • Overview of the I-O accounts -Mandate -Production cycle Structure of the I-O tables -Why Regular? -Industry and Commodity dimension - Industry and commodity Account Balance Example Case study: The clothing industry Valuation: difference between purchaser and producer The I-O Framework Applications Regionalization of the IO model - Assumptions -Outputs of the model -Confidentiality constraints Simulations – case studies Multipliers and ratios 2

Mandate of the division The mandate of the Industry Accounts Division (IAD) is to develop provincial annual and monthly national production accounts for Canada. Annual input-output tables for Canada in current and constant prices serve as the foundation for national monthly measures of constant price GDP by industry, while the inter-provincial input output tables perform this function for the annual current and constant price measures of GDP by industry for the provinces and territories In addition, the IAD supplies benchmark data for other modules of the Canadian System of National Accounts by way of annual national Input-Output (I/O) tables in current and constant prices, annual provincial Input-Output tables as well as interprovincial trade flows in current prices, supplementary tables on GDP by industry, taxes and other margins by commodity and industry.

The information provided by IAD is critical to the ability of governments and the private sector to make well informed economic decisions. Because the monthly GDP program provides the most timely measure of the status of the Canadian economy, it is a key indicator used by the Bank of Canada in setting monetary policy. Like the Bank of Canada, the Department of Finance also monitors the evolution of the economy, in its case to plan the federal budget and formulate macroeconomic policies.

This information is used by provincial and territorial governments (for example, by their finance and industry ministries) in tracking industrial sources of economic growth or contraction, and in their budgetary planning. The statistics allow them to assess the impact of economic events, and of their economic development programs on particular sectors of their economies.

The I-O tables are also used by fiscal authorities to allocate and forecast commodity taxes • by way of taxable proportions of personal expenditures, by province and by category, for HST revenue allocation (these are necessary for estimation of HST applicable level of spending for personal expenditures); • by way of levels of taxable expenditure subject to HST for industries engaged in the production of tax-exempt supplies by province; • by way of national estimates of trade, transport and tax margins (13 types in 1996) by commodity and type of user

The I-O table production process also serves to perform a measure of quality assurance audit to statistics provided by data supplying Divisions as well as providing regular feedback to these Divisions. This role is made possible through the integration of numerous data sources used in the construction of the Input-Output tables. The IAD also provides services on a cost-recovery basis to clients in government, business and academic communities, through direct sales of customized data bases and by performing economic impact simulations with internally developed input-output models on specifications provided by the client. The bulk of the data needed to calculate aggregate productivity measures and other performance indicators also comes from the I-O tables.

Input-Output Production Schedule • National tables are produced June each year with a 30 month lag from the reference year • Provincial tables are produced and released together with the national tables in November of each year with a 34 month lag from the reference year 10

Relationship between the I/O Framework and the SNA National Input-Output Tables Satellite Accounts Income and Expenditure Accounts Provincial Economic Accounts Productivity Estimates Provincial Input-Output Accounts National GDP by industry Provincial GDP by Industry Accounts Balance of Payments Accounts Environmental and resource accounts Interprovincial Trade Flow Accounts 11

BASIC STRUCTURE OF CANADIAN INPUT-OUTPUT TABLES • Rectangular Input-Output Tables developed at Statistics Canada • Inputs and Outputs of industries are presented in separate rectangular tables, showing Industry by commodity detail, (number of commodities exceed number of industries) • Input-Output tables consist of 4 matrices 1. Make Matrix (Outputs) 303 industries 727 commodities 2. Use Matrix (Inputs) 303 industries 727 commodities 3. Final Demand Matrix 172 categories 727 commodities 4. Trade flows 727 commodities 12

Industry Balance Account level S (year 2005) example 3 The total production value of any or all industries in the output table equals the sum of the intermediate inputs plus Gross Domestic Product inputs in the inputs table. 3 As an example, industry 5 for mining and oil and gas extraction, shows a production total value of 155, 827. 6 million dollars in the 2005 outputs table. The same value of total inputs of this industry of 155, 827. 6 million dollars is shown as the column total of the 2005 inputs table. The Gross Domestic Product inputs (at market price) shows as rows 5259 is 111, 390. 0 million (71. 5 % of total) and the intermediate inputs of goods and services is 44, 437. 6 millions (28. 5 % of total) shown as rows 1 -51. 14

Input-Output Identities Gross Domestic Product Market Price (2005) 3 Inputs table total column – sum of rows 52 to 59 – GDP market price inputs 1, 284, 596. 9 3 Plus Final Demand table total column – sum of rows 52 -59 – GDP Market price Final Demand 88, 030. 9 3 Equals GDP market price – Income side 1, 372, 627. 7 3 Equals expenditures on GDP – grand total of Final Demand 15

Industry Dimension 3 I/O Industry structure is NAICS-based - 6 -digit NAICS Industries (over 900) linked to I/O Industry (303) - I/O Industries are on establishment concept - Universe is based mainly on the Statistics Canada Business Register - (BR is generally used as a survey frame by survey divisions) - I/O Industry includes Input costs and Output values (similar to profit and loss statements of businesses; outputs akin to revenues, inputs akin to expenses incurred to generate revenues) - Data sources include Surveys, Administrative data, annual reports, etc. 16

I/O Industries (con’d) • All Survey and admin data can be linked to NAICS which in turn is linkable to I/O Industries • There are issues related to consistent Industry linking (company vs establishment vs enterprise) which causes data confrontation issues • I/O analysts review survey methodologies and results focussing on such things as universe, coverage, response rates, imputations, edits; production may be under/over reported, imports and exports may be improperly valued, commodities may be misclassified. • Time-series require significant interaction and feedback to survey division • Survey results are compared to other data where available such as: administrative data for wages (T 4), GIFI (General Index of Financial Information), (corporate income tax file from CRA), Net income (T 1) 17

Detail of the 303 industries and the 172 categories of final demand 287 Industries (Business sector) 16 Industries (Non-business sector) 303 52 categories of consumer expenditures 52 categories of current investment in machinery and equipment 53 categories of current investment in construction 4 categories of changes in inventories 1 category of domestic exports 1 category of re-exports 1 category of imports 6 categories of Federal, Provincial and Municipal expenses 1 category of interprovincial imports 1 category of interprovincial exports 172 18

Commodity Dimension 3 Industries produce and sell commodities which are either goods or services. 3 Input-Output goods commodities are concorded to the International Harmonized System (HS) standard classification of goods (SCG). 3 Input-Output service commodities are specified by type and will be concorded to the international Central Product Classification (CPC) (yr. 2007). 21

Commodity Balance Account Level S (year 2005) example 3 The production of a commodity (supply) equals the sum (demand) of intermediate use (inputs table) plus final demand (final demand table) 3 The domestic production from Canadian industries of the row commodity 23, motor vehicle, other transportation equipment & parts is 133, 576. 6 millions for all industries in the outputs table. 3 The Inputs table shows a total use of 68, 504. 4 millions of this commodity plus final demand total use of 65, 072. 2 millions equals 133, 576. 6 millions 22

The relationships above are shown schematically (year 2005) Inputs Final Demand Total Row 1 1328 Intermediate 1, 285 2613 Row 51 Row 52 1373 1, 285 88 GDP Row 59 Total 2613 1373 23

NAICS 1859 -Other clothing acc. National level Categ o ry Io Table 20 01 F 2 0 0 2 F 2 0 0 3 F 2 0 0 4 P 661366 64745 2 74023 1 62900 1 108991 6 11247 4 1 11423 0 0 11715 5 3 124445 2 12801 1 1 11351 8 4 12791 5 4 Supply Total 299573 4 30523 0 4 30177 1 5 30797 0 8 Dema n d Input 469081 52600 1 53367 1 53172 1 Final Demand 252665 3 25263 0 3 24840 4 4 25479 8 7 299573 30523 0 30177 1 30797 0 Supply Output Margins Imports 24

DIMENSIONS AND CONFIDENTIALITY CONSTRAINTS NAICS’s based Classifications: “W” “L” “M” “S” Industries 303 117 62 25 Commodities 727 476 111 59 Final Demand Categories 172 120 39 16 • Interprovincial I-O table adds final demand categories for Exports and Imports with each province/territory • National I-O tables are published at “S” level. The “S”, “M” and “L” levels are available on CANSIM. • Interprovincial I-O tables are only publicly available at “S” level • Confidentiality constraints make it difficult to release provincial data at more disaggregated levels 27 • Simulation model services are available using “W” level detail

BASIC STRUCTURE OF INPUT-OUTPUT TABLES Categories are reflected through all 13 provinces/territories Industries Commo dities MAKE 719 X 303 = USE 719 X 303 Categories Final Demand + = 8 X 303 = Gross output of industries = Total use of industries = + + Industry use of primary factors 719 X 172 Gross output of commodities + Final use of primary factors 8 X 172 = GDP expenditure based = GDP income based

ACCOUNTING IDENTITIES • Commodity balance: Production + imports = intermediate use + domestic final use + exports • Industry balance: - Total output of an industry (gross output) = its intermediate inputs + primary inputs - Gross Domestic Product (expenditure based) = Gross Domestic Product (income based) 29

PROVINCIAL AND INTERPROVINCIAL INPUT-OUTPUT TABLES • A Provincial Input-Output table looks identical to the National • An Interprovincial Input-Output table accounts for economic linkages among the provinces and territories, adding 24 final demand categories for exports and imports for each province and territory 30

Interprovincial Trade Flow Matrix Categories reflect 719 commodities and indirect taxes on products by province. PROVINCE/ TERRITORY Newfoundland Prince Edward Island Nova Scotia New Brunswick Québec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon Territories Northwest Territories Nunavut Government Abroad EXPORTS Ix Pxi IMPORTS IM PMi Ix =International exports Pxi=Provincial exports Im=International imports Pmi=Provincial imports 31

Interprovincial Trade Flows In addition to international exports and imports, we show provincial exports and provincial imports. This introduces three additional constraints. A) Across regions, total regional imports equal total regional exports, net (interregional) trade balances of regions sums to zero. B) Sum of foreign exports (foreign imports) of regions equal total national exports (imports). C) Across regions, total supply equals total disposition. 32

CONVENTIONS FOR INTERPROVINCIAL FLOWS 1. Exports can originate from a region if the goods or services are produced in that region or are withdrawn form inventories of establishments in that region. A regional export also occurs when services (e. g. hotel accommodations, meals or entertainment) are purchased within a region by a non-resident while staying in that region. 2. Imports are defined for a region if the goods or services are destined for the region's current expenditure, for capital formation in the region, used as intermediate inputs by establishments in that region, or make up additions to inventories. 33

I/O treatment of imports and exports l Contrast this concept with imports and exports by port of lading or custom clearance. They are in many cases not consistent with true origin and destination. l Since goods and services are valued at approximate basic prices, interregional imports and exports are more complex as goods imported from another region may lead to import of various margins from other regions or abroad. 34

VALUATION OF INPUT-OUTPUT CELLS • All Cells must be valued consistently in order for tables to balance • For Analytical Uses I-O tables are valued at producer prices • Producer Price = selling prices at boundary of the producing establishment (in manufacturing, “factor gate” price) excluding all taxes • Purchaser Price = valuation of commodities purchased by industries and final demand sectors • Margins = There are 7 types of margins that are used to convert between purchaser and producer price valuations: retail , wholesale, tax, transport, gas, storage and pipeline • I-O tables are first balanced in purchaser prices and 37 subsequently in producer prices

Producer to Purchaser valuation for a commodity 3 3 3 Value Domestic plant produce a good g 3 60 Good is transported to a wholesaler 1 Good is bought by a wholesaler 61 Good is sold by the wholesaler to a retailer 68 Wholesale margins 7 At point of sale tax is levied 12 Final purchaser value to the buyer sold by retailer plus tax 80 39

Purchaser to producer price valuation of Inputs to a buyer 3 Suppose the good valued at 80 is a input to an industry which also buys other goods and services and GDP components 3 The purchaser price to producer price maybe shown 40

Inputs for an Industry 41

Exports: purchaser’s price vs producer’s price The exports are valued at the border (purchaser’s price) which includes a transport margin. Ex: export of a good produced in a factory in Ontario Purchaser’s price: Producer’s price (factory in Ontario): Transportation margin (transporter from Manitoba) Then: export at purch. price But: export from Ontario export from Manitoba Conclusion: $15, 000. 00 $10, 000. 00 $ 5, 000. 00 = $10, 000. 00 (good) = $ 5, 000. 00 (transport margin) Only the producer’s price shows the true transactions. 44

APPLICATIONS

Output generated (Without leakages) Industry 1 Industry 2 Initial demand 10 first round 4. 6 3. 4 3. 034 2. 686 2. 12086 1. 91794 …… … … 24. 814815 12. 592593 x. 2 x. 4 4. 962963 5. 0370372 second round third round Total GDP Sum = 10

C = Consumption (personal expenditure) Accounting framework for the Canadian Provincial Input-Output Accounts I = Investment INV = Inventory Change G = Government current expenditure XI = International exports MI = International imports XP = Provincial exports MP = Provincial imports Categories are reflected through all 13 provinces/territories COMMODITIES (719 commodities) INDUSTRIES (300 industries) FINAL DEMAND CATEGORIES C I I N V G X I X P M M I P Intermediate inputs TOTAL Gross Output by Commodity Gross Output by Industry Production Indirect taxes on products Indirect taxes on production Subsidies on products Subsidies on production Wages and salaries Supplementary labour income Mixed income Other operating surplus Total GDP (income based) Primary inputs Gross Output by Commodity Gross Output by Industry GDP (expenditure based) 57

BASIS FOR DERIVING THE IMPACT MATRIX Matrix of Market Share Coefficient • Calculated from MAKE MATRIX • Industry shares of production of each commodity • g=DTq Matrix of Technological Coefficients • Calculated from USE MATRIX • Inputs required to produce a dollar of industry output • Ui=Bg Assumptions • Each industry has fixed market share of any commodity • Technical coefficients of each industry are fixed 60

=DTq DERIVING THE IMPACT MATRIX (Simplified version) (i) g (ii) Ui = Bg (iii)q = Bg + e q is the total commodity output vector; Bg is the intermediate input vector and e is the total final demand input vector exogenously specified by users (q = Bg + e is the accounting balance between the supply and total disposition of each and every commodity) Multiply both sides of equation (iii) by D: We obtain (iv) Dq = DBg + De From equation (i) Dq = g we substitute Dq by g in (iv) g = DBg + De and we isolate g (I-DB) g = De to obtain the impact equation: g = (I-DB)-1 De This is a simplified version of an economy without leakages (Imports, etc. ) 61

THE NATIONAL INPUT-OUTPUT “OPEN” MODEL • (I-DB)-1 D represents an open IO model in a closed economy with no imports of goods and services and no inventory stocks • Leakages flows originating from outside the business sector or from production in a previous year 1. Imports (µ) 2. Withdrawals from inventory ( ) 3. Other, e. g. , disinvestment of machinery and equipment as scrap 62

REFORMULATING THE MODEL • To account for leakages the solution is rewritten as: g = [I-D(I- - )B]-1 D • And the impact matrix becomes: [I-D(I- - )B]-1 per dollar of industry output [I-D(I- - )B]-1 D per dollar of commodity output 63

Output generated (With leakages) * Total GDP *Manufactured goods 0. 2 Other goods 0. 1 Services 0. 03 Industry 1 Industry 2 16. 318246 7. 540682 x. 4 3. 2636492 3. 0162728 Sum = 6. 3

A simple regional IO model Shows the links between final demands and total industry outputs Regional imports coefficients Domestic final expenditures exports g = [I - DRB] -1 D(Rf + x) Inter-industry transactions Industrial dimension of final expenditures g = gross outputs by industry (ind. by prov. ) D = market share matrix (ind. by com. by prov. ) B = input coefficients (com. by ind. by prov. ) R = regional import coefficients (com. by prov. ) f = domestic final demands (com. by prov. ) x = exports (com. by prov. ) 66

OUTPUTS OF MODEL • Direct Impacts - Industry output delivered to final demand, the value-added associated with this output as well as other supply to final demand directly • Indirect Impacts - Industry output delivered to other industries, the value-added associated with this output as well as other supply to industries • Total Impact = Direct + Indirect Impacts can be expressed in terms of: - Production (Gross Output) - Value-added (GDP) - Labour Income - Imports - Employment - Resources • Multiplier - Ratio of total impact to exogenous shock

AAFC I/O Model

No Code Industries (W) 1 111400 Greenhouse, Nursery and Floriculture Production 2 111 A 00 Crop Production (except Greenhouse, Nursery and Floriculture Production 2 a 111 A 01 Wheat 2 b 111 A 02 Feed grain 2 c 111 A 03 Oilseed 2 d 111 A 04 Potatoes 2 e 111 A 05 Fruits & Vegetables 2 f 111 A 06 Other Crops 3 112500 Animal Aquaculture 4 112 A 00 Animal Production (except Animal Aquaculture) 4 a 112 A 01 Dairy 4 b 112 A 02 Cattle 4 c 112 A 03 Hogs 4 d 112 A 04 Poultry and eggs 4 e 112 A 05 Other livestock 7 115100 Support Activities for Crop Production 8 115200 Support Activities for Animal Production

Statistics Canada’s SPSD/M The Social Policy Simulation Database and Model 74

The SPSD/M • Statistics Canada’s SPSD/M is an integrated database and tax/transfer simulation model · The SPSD/M concentrates on calculating the first round impacts of Canadian tax/transfer policy on individuals and families · Income taxes, payroll taxes, cash transfers, and commodity taxes. · It makes use of I/O data and modelling techniques to estimate the distributional impact of commodity taxes on families and individuals · http: //www. statcan. ca/bsolc/english/bsolc? catno=89 F 0002 X 75

References • Hoffman et al. , User’s Guide to Statistics Canada Structural Economic Models, Input-Output Division, Statistics Canada, 1980. • Miller, E. Ronald and Blair, Peter D. , Input-Output Analysis: Foundations and Extensions, Prentice. Hall, New Jersey, 1985. • United Nations, Handbook of Input-Output Table Compilation and Analysis, Series F, No. 74, New York, 1999. 79

Selected articles from Statistics Canada Sport Utility Vehicles: Driving Change by Erik Magnusson Manufacturing, Construction and Energy Division; Catalogue no. 11 -621 -MIE 2005020 http: //www. statcan. ca/english/research/11 -621 -MIE/11 -621 -MIE 2005020. htm#3 The Soaring Loonie and Prices: Lower Inflation for Consumers? by Radu Chiru, Prices Division Catalogue no. 11 -621 -MIE 2004014 http: //www. statcan. ca/english/research/11 -621 -MIE 2004014. htm Multipliers and Outsourcing: How industries interact with each other and affect GDP; by Philip Cross and Ziad Ghanem http: //www. statcan. ca/bsolc/english/bsolc? catno=11 -010 -X 20060019000 Rising energy prices: How big a shock to consumers and industry? by Philip Cross and Ziad Ghanem http: //www. statcan. ca/bsolc/english/bsolc? catno=11 -010 -X 20050118806 Canada's natural resource exports by Philip Cross and Ziad Ghanem http: //www. statcan. ca/bsolc/english/bsolc? catno=11 -010 -X 20050057894 Offshoring and Employment in Canada: Some Basic Facts by Anick Johnson and René Morissette http: //www. statcan. ca/english/research/11 F 0019 MIE 2007300. htm