GDP Estimates by three Approaches- Part-II: GDP by Expenditure Approach

1
GDP Estimates by three Approaches- Part-II GDP
by Expenditure Approach
Module-I PP4.2
Training Course Material for e-Library on System
of National Accounts March 2009
2
Why GDP by Expenditure?

• Shows demand for goods and services
• Stimulus to the economy
• Use of supply of goods and services
• Link to welfare and production capacity
• Link with the rest of the world

3
GDP by Expenditure

• Estimates based on the supply and use of goods
  and services
• Estimates are at purchasers prices
• Estimate is equal to GDP by economic activity at
  market or purchasers price

4
What Are the Type of Expenditure?

• Final consumption expenditure
• Households
• General government
• Non profit institutions serving households
• Gross domestic capital formation
• Gross Fixed Capital Formation
• Inventory
• Valuables
• Net export
• Exports of goods and services
• Less Imports of goods and services

5
Contribution of the institutional sectors to GDP
by final expenditures
Non-Financial Corporation Financial Corporation General Government NPISH Households ROW
Components of GDP by final expenditures   Non-Financial Corporation Financial Corporation General Government NPISH Households ROW
Individual consumption Individual consumption     YYYY   YYYY YYYY   
Collective consumption Collective consumption      YYYY      
Changes in inventories Changes in inventories  YYYY YYYY    YYYY   YYYY   YYYY  
Gross fixed capital formation Gross fixed capital formation   YYYY   YYYY   YYYY   YYYY   YYYY  
Acquisition less disposables of valuables Acquisition less disposables of valuables   YYYY   YYYY   YYYY   YYYY   YYYY  
Exports/ imports of goods and services Exports/ imports of goods and services            YYYY
6
Final Consumption Expenditure

• Expenditure incurred by resident institutional
  units on goods or services that are used for the
  direct satisfaction of individual needs or wants
  or the collective needs of members of the
  community
• May take place on the domestic territory or abroad

7
What Are Final Consumption Expenditure?

• Expenditure on goods and services by final
  consumer institutions
• General Government
• Households
• Non Profit Institutions Serving Households
  (NPISH)
• Consumption expenditure on goods and services
  from supply of goods and services in the economy
  during the period

8
Time of recording and valuation of final
consumption expenditure

• Follows the main principles in the system
• Valuation
• Purchasers prices
• Basic prices income in kind, retained goods or
  services for own consumption
• Time of recording - accrual principle
• Expenditure on a good is to be recorded at the
  time its ownership changes
• Expenditure on a service is recorded when the
  delivery of the service is completed

9
1. Household Final Consumption Expenditure

• Consumption expenditure of resident households in
  the economic territory
• From domestic production
• From imports of goods and services
• Consumption expenditure of resident households in
  other economic territory
• Import of goods and services

10
Household Final Consumption Expenditure? (Contd.)

• Households final consumption expenditure
• Goods and services acquired/used/ consumed for
  well being of the members
• Food, clothing, housing, transport, education,
  health, personal needs, durables, other
  miscellaneous expenditures
• Used the own produced goods, barter, gifts,

11
Household Final Consumption Expenditure? (Contd.)

• Includes
• Purchase of goods and services
• Own account production of goods
• Services of owner-occupied dwellings
• Gifts received in kind
• Financial services directly charged
• Insurance services
• Pension funding services
• Payments by households for licences, permits,
  etc. which are regarded as purchases of services
• The purchase of output at not economically
  significant prices, e.g. entrance fees for a
  museum

12
Household Final Consumption Expenditure? (Contd.)

• Excludes
• Social transfers in kind
• Items treated as intermediate consumption or
  gross capital formation
• Expenditures by households owning unincorporated
  enterprises
• Expenditure that an owner-occupier incurs on the
  maintenance and repair of the dwelling
• the purchase of dwellings (treated as gross fixed
  capital formation)
• expenditure on valuables (treated as gross
  capital formation)
• Purchase of land
• Payments of taxes, such as licences to own
  vehicles, boats or aircraft and also licences to
  hunt, shoot or fish
• Subscriptions, contributions and dues paid by
  households to NPISHs
• Voluntary transfers in cash or in kind by
  households to charities, relief and aid
  organizations

13
Household Final Consumption Expenditure? (Contd.)

• Additional conceptual issues requiring special
  treatment
• Hire purchases - recorded as purchases made by
  the households for the full value of the good at
  the moment it takes place
• Lottery services - valued net of lottery winnings
• Imported second-hand goods
• Treated in the way the newly purchased goods are
  treated
• In case of trading between households no
  transaction is recorded
• Subscriptions, contributions and dues paid by
  households to NPISHs like trade unions,
  professional societies etc - treated as other
  current transfers

14
Household Final Consumption Expenditure? (Contd.)

• Household as a consumer
• Household as a producer
• Unincorporated enterprises of households
• Owners of own occupied dwelling
• Expenditures on goods and services of households
  in their capacity as consumers final
  consumption expenditure
• Expenditures on goods and services of households
  in their capacity as producers intermediate
  consumption or fixed capital formation

15
Household Final Consumption Expenditure? (Contd.)

• National concept
• Including expenditures of residents abroad
• Excluding expenditures of nonresidents in the
  country

16
Household Final Consumption Expenditure? (Contd.)

• Consumption expenditure is valued at purchasers
  price
• Consumption expenditure is net of sale by
  household of second hand goods (clothing,
  household equipment, other goods previously
  purchased by households)

17
Classification of Individual Consumption by
Purpose (COICOP)

1. Food,and non alcoholic beverage
2. Alcoholic beverage, tobacco and narcotics
3. Clothing and footwear
4. Housing, water, electricity, gas and other fuels
5. Furnishing, household equipment and routine
   maintenance of house

18
Classification of Individual Consumption by
Purpose (COICOP) (Contd.)

1. Health
2. Transport
3. Communication
4. Recreation and culture
5. Education
6. Restaurant and hotels
7. Miscellaneous goods and services

19
How Household Final Consumption Expenditure is
compiled?

• Direct use of Sources of data
• Household expenditure survey
• Food Balance Sheet
• Basic and Foreign Trade statistics
• Retail trade statistics
• Commodity Flow Approach
• Availability of good/service IC GC GFCF
  -Exports

20
What is Actual Final Consumption of Household?

• The value of goods and services that the
  household consumed or used
• This includes
• Household consumption expenditure
• Social transfer receivable in kind from general
  government and non profit institutions serving
  households

21
What is Social Transfer-in-kind?

• The value of general government consumption
  expenditure which benefits individual households
  or its members
• The value of consumption expenditure of NPISH
  which benefits individual households or its
  members
• This is a transfer of services or goods for which
  the general government and NPISH have recorded as
  part of their consumption expenditure

22
What is Social Transfer-in-kind? (Contd.)

• The value of social transfer in kind is recorded
  as income in resource side of Redistribution of
  Income Account of household and as expenditure in
  Use of Adjusted Disposable Income of household

23
What is Social Transfer-in-kind? (Contd.)

• The social transfer in kind is recorded in the
  use side of the redistribution of income account
  and subtracted from the consumption expenditure
  of in the use of adjusted disposable income of
  general government and NPISH

24
Redistribution of Income in kind Account
Uses       Resources
      Disposable income 206
Social transfers in kind 10   Social transfers in kind 10
Adjusted disposable income 206      
25
What is Social Transfer-in-kind? (Contd.)

• The expenditure of government and NPISH that are
  classified under social transfer in kind
  includes
• Health services
• Education
• Culture, religion,social security and welfare
  services
• Housing and refuse collection
• Also includes purchases of goods or services of
  government that is directly provided to
  households, not included in GO of any of general
  government production activities

26
Example on How to Treat Social Transfer in Kind

• Example Government spent 50 million on the state
  university. The record showed there was a revenue
  of 12 million from tuition, sale of books, and
  other services provided to the public. The
  treatment would be
• Household consumption expenditure
• 12 million
• Government consumption expenditure
• 50 12 38 million

27
Example on How to Treat Social Transfer in Kind
(Contd.)

• Government consumption expenditure for education
  is social transfer in kind
• Social transfer in kind 38 million
• Household adjusted disposable income
• HH Income 38 million, and
• Household actual final consumption
• 12 38 50 million

28
What is Household Consumption Expenditure?

• Use
• Household consumption expenditure
• Household saving

• Resources
• Disposable income
• Compensation
• Property income
• Current transfer

29
What is Household Actual Final Consumption?
(Contd.)

• Use
• Actual household consumption
• Household consumption expenditure
• Individual consumption expenditure of government
  and NPISH
• ( Social transfer in kind)
• Household saving

• Resources
• Adjusted disposable income
• Household disposable income
• Government and NPISH social transfers in kind

30
2. Government Final Consumption Expenditure

• Gross value of output less sale of goods and
  services of the following economic activities of
  general government
• Public administration
• Education services
• Health services
• Other related services produced by general
  government

31
Government Final Consumption Expenditure (Contd.)

• Government sector includes
• General administration
• Government entities producing free or almost free
  services (public education, health services and
  other services)
• (For EU countries - 50 criteria)
• Non-profit institutions mainly controlled and
  financed by government

32
Output of Government Sector

• Types
• Non-market output
• Output for own final use
• Market output
• Measurement
• Output of non-market producers measured at costs
• Output intermediate consumption
• compensation of employees
• other taxes on production
• consumption of fixed capital

33
Coverage of Government Final Consumption
Expenditure

• Includes government purchases intended primarily
  as current transfer in kind, not used as
  intermediate input of production of services
• Government purchase of food to be distributed to
  the victims of flood
• Government purchase of blankets to be distributed
  to the homeless

34
Estimation of Government Final Consumption
Expenditure (GFCE)

• GFCE Total Output of Government Sector
• - Own account gross capital formation
• - Sales of goods and services (mostly
  non-tax fees)
• Benefits in kind (purchases of market
  goods and services to be provided free
  to households)

35
Type of Government Consumption Expenditure

• Government consumption expenditure is classified
  into
• Individual consumption expenditure - expenditure
  whose recipient are individual persons or
  individual households (health services, education
  services, social security and welfare, sports,
  recreation, culture, etc)
• Collective consumption expenditure - expenditure
  for general population-public goods- (public
  administration, defence, law order-police,
  infra-structure economic development, R D
  etc.)

36
Classification of Function of Government (COFOG)

1. General public services
2. Defence
3. Public order and safety
4. Economic affairs
5. Environmental protection

37
Classification of Function of Government (COFOG)
(Contd.)

• Housing and community amenities
• Health
• Recreation, culture and religion
• Education
• Social protection

38
Economic Classification of GFCE

• GFCE by Economic type
• Intermediate consumption
• Compensation of employees
• Consumption of fixed capital
• Sales (market output)
• Social benefits in kind
• Own account capital formation
• Gross capital formation (purchased) Subsidies
• Property income
• Social benefits other than in kind (in kind)
• Other current transfers
• Capital transfers

39
What Is General Government Consumption
Expenditure?

• Sources of Data
• Government Finance Statistics
• Statement of Revenue and Expenditure of national
  and local government
• National Budget Statement
• Budget documents (Demand for Grants) of Central
  Government (all Ministries), all State /
  Prefecture / Province/ State Governments and all
  Local bodies

40
3. What is Non-Profit Institutions Serving
Households (NPISH) Final Consumption Expenditure?

• The value of services of NPISH less the sale or
  receipt from goods and services
• Expenditure is generally funded through
  donations, current transfers, property income and
  operating surplus of market establishment of
  NPISH
• All expenditure of NPISH are taken as individual
  consumption expenditure and is social transfer in
  kind to households

41
Final Consumption Expenditure of NPISH

• Final consumption expenditure of NPISH equals
  output of NPISH less sale of goods and services
• FCE GO ( NPISH) Sales
• All Final consumption expenditure of NPISH is
  classified as individual consumption expenditure

42
Classification of the Purpose of the NPISH (COPNI)

1. Housing
2. Health
3. Recreation and culture
4. Education
5. Social protection
6. Religion
7. Political parties, labour and
8. Environmental protection
9. Services n.e.c.

43
Concept of Final Consumption in the System

• SNA looks at the final consumption from two
  perspectives
• Final consumption expenditure depicts the
  expenditures that the units incur
• Actual consumption refers to consumption
  benefited irrespective of who made expenditure
• Difference - lies in the treatment of certain
  goods and services financed by the government or
  NPISHs but supplied to households as social
  transfers in kind

44
4. Actual Final Consumption

• Actual final consumption of households
• Household final consumption expenditure
• Individual consumption expenditure of
  general government
• Individual consumption expenditure of NPISH

45
Actual Final Consumption (Contd.)

• Actual final consumption of general government
• Government consumption expenditure -
  Individual consumption expenditure of general
  government

46
Actual Final Consumption (Contd.)

• Actual final consumption of NPISH
• NPISH consumption expenditure
• - Individual consumption expenditure of
  NPISH

47
Actual Final Consumption (Contd.) Social
transfers in kind

• Social benefits in kind
• Social security benefits, reimbursements on
  specified goods and services
• Other social security benefits in kind except
  reimbursement
• Social assistance benefits in kind
• Transfers of individual non-market goods and
  services - should be equal to outputs of
  government and NPISHs less (sales and own-account
  gross capital formation)

48
Actual Final Consumption (Contd.) Relationship
between concepts

  Sector making expenditure Sector making expenditure Sector making expenditure Sector making expenditure Sector making expenditure Sector making expenditure Sector making expenditure Actual final consumption Actual final consumption
  Government Government NPISHs NPISHs NPISHs Households Households Actual final consumption Actual final consumption
Individual consumption X X X X X X X Households actual individual final consumption Households actual individual final consumption
  ( Social transfers in kind) ( Social transfers in kind) ( Social transfers in kind) ( Social transfers in kind) ( Social transfers in kind)     Households actual individual final consumption Households actual individual final consumption
Collective consumption X X 0 0 0 0 0 Government's actual collective final consumption Government's actual collective final consumption
  X X 0 0 0 0 0 Government's actual collective final consumption Government's actual collective final consumption
Total final consumption Government's final consumption expenditure Government's final consumption expenditure NPISHs final consumption expenditure NPISHs final consumption expenditure NPISHs final consumption expenditure Households final consumption expenditure Households final consumption expenditure Actual final consumption Total final cons. expenditure Actual final consumption Total final cons. expenditure
49
5. Gross Domestic Capital Formation (GDCF)
GDCF Consists of Gross fixed capital
formation Changes in inventories Acquisitions
less disposals of valuables Gross in GDCF means
gross of CFC GDCF CFC NDCF
50
Gross Domestic Capital Formation

• Resident producers acquisitions, less disposals
  of non- financial produced fixed assets plus
  certain additions to value of non-produced
  assets
• Major improvement of tangible non- produced
  assets
• Cost of transfer of ownership of non- produced
  assets

51
Gross Domestic Capital Formation (Contd.)

• Includes
• New or existing fixed assets purchased
• Fixed assets produced and retained for producers
  own use
• New or existing fixed assets acquired through
  barter
• New or existing fixed assets received as capital
  transfers in kind
• New or existing fixed assets acquired by the user
  under a financial lease
• Major improvements to fixed assets and existing
  historic monuments
• Natural growth of those natural assets that yield
  repeat products

52
Gross Domestic Capital Formation (Contd.)

• Negative values, i.e. disposals of fixed assets
  recorded as negative acquisitions
• Existing fixed assets sold
• Existing fixed assets surrendered in barter
• Existing fixed assets surrendered as capital
  transfers in kind

53
Important Issues to Consider

• Capital assets are used repeatedly for
  production, including animals, plants,etc..
• Treated as addition to inventory while growing
• Treated as fixed assets once production starts
• Death and reduction of productivity taken as CFC
• Include produced assets acquired by purchases,
  barter, capital transfers and produced for own use

54
Important Issues to Consider (Contd.)

• Only transfer cost of non-produced assets are
  included in capital formation
• Household durables for household operated
  activities should be allocated to GDCF
• Household durables for households own use should
  be allocated to HFCE

55
Types of GFCF

• Acquisitions, less disposals, of tangible fixed
  assets
• Dwellings
• Other buildings and structures
• Machinery and equipment
• Cultivated assets, e.g. trees and livestock
• Acquisitions, less disposals, of intangible fixed
  assets
• Mineral exploration
• Computer software
• Entertainment, literary or artistic originals
• Other intangible fixed assets
• Major improvements to tangible non-produced
  assets, in particular those pertaining to land
• Costs associated with the transfers of ownership
  of non-produced assets, like land and patented
  assets

56
Types of GFCF Borderline cases

• GFCF includes
• Acquisitions of houseboats, barges, mobile homes
  and caravans used as residences of households and
  any associated structures such as garages
• Structures and equipment used by the military
  (similar to those utilized by civilian producers)
  such as airfields, docks, roads and hospitals
• Light weapons and armored vehicles used by
  non-military units
• Changes in livestock used in production year
  after year, such as breeding stock, dairy cattle,
  sheep reared for wool and draught animals
• Changes in trees that are cultivated year after
  year, such as fruit trees, vines, rubber trees,
  palm trees, etc.
• Improvements to existing fixed assets that go
  well beyond the requirements of ordinary
  maintenance and repairs
• The acquisition of fixed assets by financial
  leasing

57
Types of GFCF Borderline cases (Contd.)

• GFCF excludes
• Transactions included in intermediate consumption
  - purchase of small tools ordinary maintenance
  and repairs purchase of military weapons and
  their supporting systems the purchase of fixed
  assets to be used under an operational leasing
  contract
• Transactions recorded as changes in inventories -
  animals raised for slaughter, including poultry
  trees grown for timber (work-in-progress)
• Machinery and equipment acquired by households
  for purposes of final consumption (final
  consumption expenditure)
• Holding gains and losses on fixed assets (other
  changes in assets)
• Catastrophic losses on fixed assets (other
  changes in assets), e.g. destruction of
  cultivated assets and livestock by outbreaks of
  disease (and not normally covered by insurance)
  or damage due to abnormal flooding, wind damage
  or forest fires

58
Types of GFCF Intangible fixed assets

• Mineral exploration comprising costs of actual
  test drilling, aerial or other surveys,
  transportation costs, etc.
• Computer software and large data bases to be used
  in production for more than one year
• Literary and artistic originals of manuscripts,
  renderings, models, films, sound recordings, etc.
• Costs of ownership transfer incurred by their new
  owner consist of
• Charges incurred in taking delivery of the asset
  (new or existing asset) at the required location
  and time, such as transport charges, installation
  charges, erection charges
• Professional charges or commissions incurred,
  such as fees paid to surveyors, engineers,
  lawyers, valuers, etc., and commissions paid to
  estate agents, auctioneers
• Taxes payable by new owner on transfer of
  ownership of the asset

59
Types of GFCF Major improvements to land

• Reclamation of land from sea by the construction
  of dikes, sea walls or dams for this purpose
• Clearance of forests, rocks, etc. to enable land
  to be used in production for the first time
• Draining of marshes or the irrigation of deserts
  by the construction of dikes, ditches and
  irrigation channels
• Prevention of flooding or erosion by the sea or
  rivers by the construction of breakwaters, sea
  walls or flood barriers

60
Time of recording and valuation of GFCF

• Time of recording
• When the ownership of the fixed assets is
  transferred
• Modification is needed in case of
• Financial leasing
• Own-account fixed capital formation
• Valuation
• At purchasers prices including installation
  charges and other costs of ownership transfer
• Basic prices or at costs plus a mark-up for net
  operating surplus or mixed income when produced
  on own-account
• Discounted future benefits

61
Estimation methodology of GFCF

• Two broad ways
• Conventional approach of collecting information
  from businesses and the public sector largely
  based on the commercial accounting practice
• Commodity flow approach - estimates of supply
  (output plus net imports of products adjusted for
  change in inventories) are allocated to the
  components of use. Due care of Parts of capital
  goods and Partly (also used by HHs) capital goods
  appropriately taken

62
Changes in Inventories

• Changes in inventories are measured by
• the value of the entries into inventories
• less the value of withdrawals from the
  inventories
• less the value of any recurrent losses of goods
  held in inventories
• Categories of inventories
• Material and supplies
• Work-in-progress
• Finished goods
• Goods for resale

63
Time of recording and valuation

• Time of recording
• Should be consistent with the time of recording
  of other transactions in products - intermediate
  consumption, output and GFCF
• Valuation
• Holding gains/losses should be excluded
• Additions to inventories - at prices prevailing
  at the time of their entry
• Withdrawals from inventories - at prices
  prevailing at the time of withdrawal

64
Prices Used in Change in Inventory

• addition withdrawal
• Finished product basic basic
• Goods in progress basic basic
• Goods for resale purchasers purchasers
• Raw materials purchasers purchasers
• Supplies purchasers purchasers

65
Inventory valuation and measurement

• Historic costs basis from business accounts
• First-In-First-Out (FIFO)
• Withdrawals - valued at prices of the oldest
  items
• Stocks - valued at prices of recently purchased
  items
• Last-In-First-Out (LIFO)
• Withdrawals - valued at prices of the newest
  items
• Stocks - valued at prices of the earliest
  purchases
• Weighted average cost
• Information for both the value and volume of
  inventories is required
• The average prices are calculated on its basis
• This price is used to derive the book value
  figures at the end of the quarter

66
Inventory valuation an example

• Basic data
• (A) Book values end September 1000
• end December
  1600
• (B) Inventories price index (base year 100)
• September
  126
• October
  130
• November 131
• December
  135
• Calculation
• (C) Level of inventories at constant prices
• end September
  794 (1000 x100/126)
• end December
  1185 (1600 x 100/135)
• (D) Change in inventories at constant prices 391
  (1185-794)
• (E) Change in inventories at current
• replacement cost
  516 (391 x ((130131135)/3)/100)
• (F) Holding gain
  84 (1600-1000)-516

67
Estimation of Change in Inventory

• value of addition value of withdrawal
  recurrent losses
• (volume of closing inventory volume of
  opening inventory) average price during the
  period
• value at closing inventory value at opening
  inventory

68
Estimation of Capital Formation on Non- Produced
Assets

• Improvement of non-produced assets
• Transfer cost in change of ownership
• Commission
• Taxes
• Other cost

69
Acquisition less disposals of valuables

• Valuables
• Non-financial goods
• Not used primarily for production or consumption
• Do not deteriorate over time
• Acquired and held primarily as stores of value

70
Types of valuables

• Precious stones and metals
• Diamonds
• Non-monetary gold
• Platinum
• Silver
• Antiques and other art objects
• Paintings
• Sculptures
• Other valuables
• Jewellery fashioned out of precious stones and
  metals
• Collectors items

71
Types of valuables (Contd.)

• The following types of goods are to be recorded
  as acquisition or disposal of valuables in case
  of
• Non-monetary gold, silver, etc. by (central)
  banks and other financial intermediaries
• The acquisition or disposal of valuables by
  enterprises whose principal or secondary activity
  does not involve the production or trade in such
  types of goods (i.e. this acquisition or disposal
  is not included in the intermediate consumption
  or fixed capital formation of these enterprises)
• The acquisition or disposal of valuables by
  households (i.e. such acquisitions are not
  included in final consumption expenditure by
  households)

72
Valuation of valuables

• Production of valuables - valued at basic prices
  
• Acquisitions of valuables - valued at the
  purchasers prices
• including any agents fees or commissions
• including trade margins when bought from dealers
• Disposals of valuables - valued at the prices
  received by sellers
• excluding any fees or commissions paid to agents
  or other intermediaries
• Acquisitions less disposals between resident
  sectors cancel out, leaving only agents or
  dealers margins

73
6. Exports and Imports of Goods and Services
74
Transactions With Rest of the World

• Goods and services (included in estimation of GDP
  by expenditure)
• Incomes (flows of factor services payment for
  resources of resident institutions used by rest
  of the world such as labour income, investment
  income and rent of natural resources)
• Capital
• Financial instruments

75
Transactions of Goods and Services with Rest of
the World

• Exports flow of goods and services from
  resident units to non resident units
• Imports flow of goods and services from non
  resident units to resident units

76
Transactions of Goods and Services with Rest of
the World (Contd.)

• Transactions of goods classified using
• Harmonized system ( developed by International
  Customs Association for tax purposes)
• System of International Trade classification (
  SITC)
• Recorded when transfer of ownership takes place,
  in practice when recorded in
• Customs ( crosses geographic boundary)
• Purchases of non resident in economic territory

77
Transactions of Goods and Services with Rest of
the World (Contd.)

• Exports
• Goods valued at f.o.b. (free on board, exclude
  value of insurance and freight) during change of
  ownership or as the goods cross the customs
  boundary
• Trade in non factor services include provision of
  services to non residents
• Merchandising of goods
• Transport, insurance, hotels and restaurants,
  etc..
• Data on transaction of goods taken from customs
  manifest and institutions purchasing from local
  economy (embassies and non resident institutions)

78
Transactions of Goods and Services with Rest of
the World (Contd.)

• Exports (Contd.)
• Data on exports of services includes exports of
  non factor services and purchases of non resident
  from resident institutions
• Data on export of services are taken from surveys
  or transactions from the banks, purchases of non
  residents in domestic territory are recorded as
  travel in BOP
• Exports could be understated by undervaluation,
  smuggling, mis-declaration, under coverage and
  cross boarder trade and other unrecorded flows
  such as e-commerce in services

79
Transactions of Goods and Services with Rest of
the World (Contd.)

• Imports
• Include both imports of goods and non factor
  services
• Goods are valued at cif (cost, insurance and
  freight) at customs boundary but national
  accounts compilation removes insurance and
  freight and transfer to services to make it at
  fob
• Imports of goods purchased by residents during
  travel to rest of the world is recorded as
  services under travel

80
Transactions of Goods and Services with Rest of
the World (Contd.)

• Imports (Contd.)
• Data on imports of goods and services are
  understated by smuggling, undervaluation , e-
  commerce, and under-recording of transactions,
  and payment outside the banking system
• Transactions of other services are difficult to
  measure, e.g., communication, computer services (
  such as development of software) and e- commerce

81
Transactions of Goods and Services with Rest of
the World (Contd.)

• Some exclusion in transactions of goods and
  services with rest of the world
• Transactions of non resident units in the economy
  with rest of the world
• Flows of sample product, goods for exhibition,
  goods for repair and for rent
• Flows of goods of returning residents

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Transactions of Goods and Services with Rest of
the World (Contd.)

• Some exclusion in transactions of goods and
  services with rest of the world
• Factor services ( labour, financial resources,
  etc)
• Goods under operational leasing or for rent

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Standard International Trade Classification (SITC)

• 0 - Food and live animals
• 1 - Beverages and tobacco
• 2 - Crude materials, inedible, except fuels
• 3 - Mineral fuels, lubricants and related
  materials
• 4 - Animal and vegetable oils, fats and waxes
• 5 - Chemicals and related products, n.e.c.

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Standard International Trade Classification
(SITC) (Contd.)

• 6 - Manufactured goods classified chiefly by
  material
• 7 - Machinery and transport equipment
• 8 - Miscellaneous manufactured articles
• 9 - Commodities and transactions not
  classified elsewhere in the SITC
• I - Gold, monetary
• II - Gold coin and current currency coin

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Time of recording and valuation of exports and
imports of goods

• Time of recording
• In principle - when the ownership of the goods is
  transferred
• In practice - a change of ownership is considered
  to occur at the time the parties to the
  transaction record it in their books or accounts
• This may not coincide with the various stages of
  the contractual process
• Valuation
• Imports and exports of goods are to be valued
  free on board at the border of the exporting
  country (f.o.b.)
• Basic prices
• plus the related transport and distributive
  services up to that point of the border,
  including the cost of loading on to a carrier for
  onward transportation
• plus any taxes less subsidies on the goods
  exported

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Exports and imports of services

• Exports of services - all services rendered by
  residents to non-residents
• Imports of services - all services rendered by
  non-residents to residents
• Type of services
• Transport
• Tourism
• Other services construction, business services,
  financial services, insurance, etc.

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• THANKS