National Income Accounts Research Articles

Book Reviews

Book Reviews

Growth Effects of Industrial Clusters

This article develops a simple methodology for calculation of growth effects of industrial clusters at national level and estimates the economic determinants of the clusters’ size-class of production by using data on 354 individual industrial clusters in India. Gross value of industrial clusters is indirectly measured and growth effects are calculated within the National Income Accounting framework. Determinants are estimated by using the grouped data on size-class of value of production by clusters. Results show that industrial clusters contributed to India’s economic growth of manufacturing sector (or Indian economy) between 8 to 3 per cent (or between 1 to 0.4 per cent) in 2002–2003 and 2003–2004, respectively. Binary Logit estimates show that industrial clusters with modern small scale industries and traditional art and craft products, high and medium heterogeneity, high and medium potential for technology upgradation and exports and those which are market or resource based are the important determinants of size-class of production of clusters. Other things being equal, an improvement in these determinants may contribute to higher gross value added and maximization of economic growth by industrial clusters. This analysis is useful to calculate the determinants of probability of individual clusters belonging to larger size-class of production at the state level. Further, the approach is relevant and applicable to estimate growth effects of industrial clusters in other South Asian countries as well.

Measuring the Sudanese economy: a focus on national growth rates and regional inequality, 1959–1964

What effect did the adoption of national income accounting as a planning technique have on economic policy-making in Sudan during the first half of the 1960s? This article draws on extensive archival evidence from the World Bank Archives, the British National Archives and the National Records Office in Khartoum, Sudan. The main conclusion is that national income accounting heightened planners' awareness of income inequality between Sudan and other states, but lessened their awareness of regional inequality within Sudan. This article takes the Ten Year Plan of Economic and Social Development, 1961/62–1970/71 as a case study for how policy-makers implement plans that magnify inequality in the name of development. The conclusion offers some suggestions for the connection between growing regional inequality and the October 1964 coup.

Book Reviews

Explores the scientific work of Simon Kuznets and his impact on economics as a discipline. Discusses the rise of academic economists before World War I; the early history of the National Bureau for Economic Research; the emergence of national income accounting as a tool of economic policy; the use of national income accounting to study comparative economic growth; the scientific methods of Kuznets; further aspects of the legacy of Kuznets; and the quarter century since the death of Kuznets. Robert William Fogel is the recipient of the 1993 Nobel Prize for Economics, Charles R. Walgreen Distinguished Service Professor of American Institutions in the Booth School of Business, Director of the Center for Population Economics, and a member of the Department of Economics and the Committee on Social Thought at the University of Chicago. The late Enid M. Fogel was Associate Dean of Students in the Booth School of Business at the University of Chicago. Guglielmo is Assistant Professor of Economics at Bentley University. Grotte is Associate Director of the Center for Population Economics at the University of Chicago.

Rethinking Financial Capitalism and the “Information” Economy

This talk examines the popular idea that “economic growth” can continue indefinitely in post-industrial capitalist economies through the shift of labor to “service” sectors, particularly finance and information-based activities, in the light of the classical-Marxian theory of value and the related categories of productive and unproductive labor. As the generally accepted classical theory of land rent exemplifies, many types of income in capitalist economies, including interest, financial fees, speculative trading profits, and intellectual property royalties, arise as parts of the surplus value generated by the exploitation of productive labor appropriated through the assertion of various property rights. The dramatic phenomena of highly profitable “business models” based on network externalities associated with the internet and other information-based technologies do not represent new modes of value production, but modes (in some cases not particularly new) of participation in the pool of surplus value. National income accounting conventions that impute a fictitious output as a counterpart to incomes generated in sectors such as finance, professional and business services, education and health, and government, where there are no market-based measures of output create a distorted and misleading picture of value production and growth in advanced capitalist economies. A clear understanding of the origin of value in the expenditure of productive labor and of surplus value in the exploitation of productive labor is essential to thinking through the problems of post-industrial capitalist growth, distribution, resource conservation, and environmental protection.

The Design of Monetary Institutions: An Accounting and Economics perspective

We enter meeting ground between two agendas of the heterodox economics programme; the stock-flow-consistent models pioneered by Wynne Godley, and the monetary circuit approach researched in France and Italy. The objective is to present a National Income accounting approach to two innovations in payments mechanisms: deposit-creating institutions and conditional cash transfers.

An Empirical Analysis of Middle Class Welfare: Testing Alternative Approaches

Every year the Census Bureau reports data on income inequality and poverty, based on income estimates derived from the Current Population Survey. Our analysis suggests that the data may not be presenting an accurate picture. By under-reporting incomes, leaving out certain sources of income, and not making equivalence adjustments that are now standard among researchers, the reports present an imperfect picture of overall welfare. We develop an alternative that relies on data from the National Income and Product Accounts. Our data reveal that real median incomes have been increasing in the recent period, albeit at a slower rate than the long-term average. Using the same methodology for consumption, we find that consumption for all income groups, including the middle, has been growing robustly in recent times. This is in contrast to statistics reported by the Consumer Expenditure Survey, the most often cited data for all consumption analysis, which show middle class consumption declining.

BOOK REVIEWS

BOOK REVIEWS

Social development in market society by intrinsic value account: a case of China

PurposeThe purpose of this paper is to reargue the great controversies surrounding marketization, by the concept of intrinsic value and to give a panorama of China's marketization and social development during last 30 years.Design/methodology/approachThe concept of intrinsic value is elaborated, and marketization and closely linked concepts such as price, wealth, happiness, freedom, etc. are reargued. An intrinsic value account (IVA) is constructed and the enhancement and weakening of some intrinsic values could be clearly shown. A panorama of China's marketization and social development is exhibited by IVA.FindingsThe basic point of this paper is that social development is a concept with strong but implicit ethical assumption and should be explicitly based upon intrinsic value. Without concrete definition and consensus on intrinsic value, it will face great disputes on judging human history as social development or social degradation. Market is not only an objective value‐neural system, but a subjective moral entity. China's maketization has enhanced economic value greatly, but suffered great loss by other intrinsic values.Practical implicationsIVA could be a practical instrument to evaluate social development and clarify the possible academic controversies on market. The arguments of China's marketization experience could be of benefit to other developing countries.Social implicationsThis paper could encourage people, particularly policy makers, to consider their value assumptions, value priority, some basic concepts in market, and what human kind is really pursuing.Originality/valueThe paper shows that IVA could be a new instrument to better evaluate social development, similar to the National Income Account or National Happiness Account.

An Input-Output Analysis with an Environmentally Adjusted Agricultural and Forestry Sector in Bangladesh

Traditional national income accounting methods does not make an allowance for the environmental damages incurred while producing the current output. Agriculture is no longer considered to be an environmentally friendly activity. In Bangladesh, efforts to feed an ever-increasing population have meant unsustainable farming practices and a steady depletion of the resource base. The quality of the environment has been degraded and ability of the future generations compromised. This calls for “greening” of GDP by deducting negative changes in environmental quality in national income calculation. This paper begins by developing an environmental account for Bangladesh's agricultural sector. This is done by collecting physical data on depletion and degradation of environmental resources and then estimating their costs by appropriate valuation techniques. The environmentally adjusted agricultural sector is then integrated with a Social Accounting Matrix. Finally, sectoral products for agriculture and forestry are estimated net of environmental cost.

Making space for well-being

“There is a paradox at the heart of our lives. As Western societies have got richer, their people have become no happier” (Layard, 2005). Layard has not been alone in questioning the relationship between economic growth and well-being. Theoretically, empirically and politically, there is an increasing amount of dissatisfaction with growth as the main indicator of well-being. As part of this dissatisfaction, there is a renewed interest in analysing the institutions and conventions through which the economy and society are measured and understood. The wealth of nations—and for that matter, regions and cities—has traditionally been assessed in terms of some measure of output, consumption or income, such as Gross Domestic Product (GDP) per capita or Gross Value Added (GVA). Such official measures of national monetary wealth go back to the early part of the 20th century. The major thrust for the creation of modern national income accounting came with the economic crisis of the Great Depression, the military conflict of World War II and the emergence of Keynesian economics and policymaking. These conventional metrics have long been used to gauge the pace and scale of economic growth and to compare one nation’s (or region’s) prosperity with that of another. Important and revealing though such traditional measures are, it has long been recognized that per capita GDP or GVA or average incomes exclude some key ‘non-market’ factors and activities that may not be easily measurable in monetary terms but which nevertheless play a major role in shaping the quality of everyday life. They therefore not only contribute to an individual’s and society’s sense of ‘well-being’ but should also be taken into account when measuring national ‘prosperity’ or ‘output’.

Income Tax Fraud: Estimations of Its Dimensions; Its Economic Consequences and a Tax Reform Proposal

Despite considerable improvements in public finance since 2001, the GDP ratio of the budget and public deficits are expected, respectively, to be around 2% and 6% in 2011. Apparently there is no room left for further reductions in any of the main items of public expenditures. So, to further reduce the public deficit, Turkey must increase its public revenues the GDP ratio of which is less than half of that of the EU and the OECD average. The problem lies in the dearth of direct tax revenues and of personal income tax receipts which nowadays stand at 0.047GDP of which 91.7% is paid by wage and salary recipients. All the rest of the recipients of taxable personal income (BTGVM) declare their before tax income is 2% of the GDP and end up paying the ludicrous sum of 0.035% of the GDP in personal income taxes. This implies that these persons actually earn, not 2% but 26%-30% of the GDP. Using detailed statistics released by the Finance Ministry, tabulating the average earnings reported and the income taxes paid by 46 groups of tax-payers categorized by “field of activity” and the average income tax-rate incurred by each category, the authors first make micro based analyses and then approach the same issue using National Income accounts. In both cases they reach similar results: that this class of citizens are fraudulently reporting only 1/13th to 1/15th of their before tax income and that the earned but unreported income in Turkey is no less than 0.3GDP when unreported corporate profits are also included. These estimations by the authors are confirmed by the fact that, the National Income Accounts was recently “corrected” officially, by the creation a new GDP series that added 30%-33% to the old series. There is another sour-spot in the tax system: The de-jure personal income tax schedule direly need an overhaul because it starts by taxing the minimum wage income and less at a whopping 15% and it swiftly shoots up to the marginal rate of 35% at a very low level of pre-tax income of only 28,000 USD per year which happens to be the maximum marginal rate applied to even multi-millionaires. The authors suggest that, if a much more progressive de-jure income tax schedule which starts with 0 or 1% rate for incomes below the minimum wage (5,000 USD), which reaches the present maximum of 35% marginal rate at about 70,000 USD (instead of the present 28,000) and which rises to about 60% for the highest income-levels and if simultaneously the necessary judicial and institutional measures were taken to effectively minimize the colossal size of “earned but unreported and hence untaxed incomes”, then Turkey would be able to increase its direct-income tax revenues (cet.par.) by no less than 10%-12% of GDP. The authors then argue that if both were accomplished, not only the public deficits would be cet.par., minimized, reducing inflation and interest rates as well as the domestic savings gap (thus enhancing economic stability) but also Turkey would increase her public

Measuring America: how economic growth came to define American greatness in the late twentieth century

The United States has always fancied itself a nation apart--exceptional in its values, traditions, and way of life. For most of the country's history, ideas about what made distinctive generally were framed in terms of a liberal idealism rooted in the thought of John Locke and articulated by Jefferson, Madison, and other Founders. While some commentators also observed that the United States was a land of plenty, it wasn't until the mid-twentieth century that material abundance emerged as the principal standard of American greatness, as measured by a host of new economic indicators. Beginning in earnest in the wake of World War II, opinion-shapers in politics, business, academia, the media, the schools, and public diplomacy gloried in the nation's booming economy. Where plenty had once been a largely abstract concept, it was now quantifiable, thanks to new national income accounting and other economic data collection and analysis techniques. One could tally up production and consumption of an ever-expanding cornucopia of goods and services that made up the gross national product (GNP), the king of postwar statistics. American preeminence and American identity were increasingly linked with this measurable prosperity, presented in the language of a newly influential economics profession. In Measuring America, Andrew L. Yarrow explores this history, telling two parallel, interlocking stories--of how economic ideas came to have vastly greater influence on American culture after World War II, and how those ideas dovetailed with a growing belief that the meaning and value of the United States resided in its material output. How and why this new way of measuring America developed, how it was expressed, and what it has meant and means for Americans today are the subject of this well-researched and insightful book.

Purchasing Power Parity Exchange Rates for the Global Poor

The global poverty count uses a common global poverty line, often referred to as the dollar-a-day line, currently $1.25 at 2005 international prices, whose construction and application depends on purchasing power parity (PPP) exchange rates for consumption. The price indexes that underlie the PPPs used for this purpose are constructed for purposes of national income accounting, using weights that represent patterns of aggregate consumption, not the consumption patterns of the global poor. We use household surveys from 62 developing countries to calculate global poverty-weighted PPPs and to calculate global poverty lines and new global poverty counts. (JEL C43, E21, F31, I32, O15)

We Are What We Measure

We Are What We Measure

The use of global abstractions: national income accounting in the period of imperial decline

AbstractThis article explores the history of a conceptual world economic order of nations created by statistically minded economists over the last seventy years. Drawing upon work by Colin Clark, Richard Stone, and Simon Kuznets from the 1930s, 1940s, and 1950s, it reconstructs the rise of new economic indicators referring to economic inequality. Two forms of intellectual practice can be identified that characterized a remarkable shift in knowledge production in Anglo-American economics in the period of French and British imperial decline. One was new methods of counting and comparing income, which produced a sensational new view of the world as a place of enormous poverty. The other was the belief that these issues could be solved by applying a limited set of policy recommendations to all economies in the world.

New financial elites, or financial dualism in historical perspective? An extended reply to Folkman, Froud, Johal and Williams

This paper challenges the recent suggestion that a new financial elite has evolved which is able to capture substantial profit shares for itself. Specifically, it questions the assumption that new groups of financial intermediaries have increased in significance primarily because there is evidence that various types of financial speculators have played a similarly extensive role at several junctures of economic development. The paper then develops the alternative hypothesis that, rather than being a recent development, the rise of these financial intermediaries is a cyclical phenomenon which is linked to specific regimes of capital accumulation. The hypothesis is underpinned by historical data from the US National Income and Product Accounts for the period from 1930 to 2000, which suggest that the activities of `mainstream' financial intermediaries have been accompanied by the frequently countercyclical activities of a `speculative' sector of security and commodity brokers. Based on the combination of this qualitative and quantitative evidence, the paper concludes that the rise of a speculative financial sector is a potentially recurrent phenomenon which is linked to periods of economic restructuring and turmoil.

State Health Accounts

The attempts of developing Health Accounts are on the learning curve in most of the developing countries. Contrary to this most of the European countries and few countries in the American continent have produced health accounts. Though India did produce its Health Accounts very recently, more distance needs to be covered at the state level. Health Accounts are considered to be more useful as a policy tool for bringing in corrective measures as regards the financing of disease specific interventions. The conceptual clarity of developing such accounts are also in infancy in most of the developing countries due to the fact that the OECD model of System of Health Accounts (SHA) as well as the Producers’ Manual of Health Accounts (WHO, USAID & WORLD BANK) cannot be easily adopted and adapted in the context of developing economies. In this background the study assumes significance due to the fact that it would be an in-house and pioneering exercise to develop and understand the conceptual as well empirical issues in developing health accounts. The study would be useful for the academicians and the managers of health sector in the years to come. The lessons learnt would be useful in scaling up such experiments both at the state and national level. Health Accounts would provide broad indicators for policy makers just like the information that emanates from the National Income Accounts. Tracking down of Actors, Activities and Transactions in the health sector would help us to use the scarce resources for better governance of the health sector.

INTANGIBLE ASSETS AND NATIONAL INCOME ACCOUNTING

In this paper I relate the measurement of intangibles to the project of measuring the sources of growth. I focus on three related and difficult areas of the measurement of national income: the measurement of new goods, the deflation of intangible investment, and the divergence between the social and private valuations of intangible assets. I argue that the economic theory and practice underlying measurement of these items is currently controversial and incomplete, and I point toward how concretely to move forward.

ASEAN: A Chronicle of Shifting Trade Exposure and Regional Integration

The paper characterizes trade exposure and regional integration in six ASEAN economies during 1997-2008. For this, the paper uses the 2000 Asian Input Output Tables which are extrapolated using National Income Accounts and COMTRADE data. On the demand side, the paper shows that the level and geographical nature of external exposure varies across the ASEANs, and has changed over time. In particular, there was a shift in the external demand exposure of ASEANs from mature markets, including the United States, to China and ROW. In addition, the share of China in East Asia’s final demand, especially investment, rose sharply while that of Japan fell. On the supply side, the paper documents the rise of China into a “global factory” and the steady shift in regional production and integration from Japan and the United States to China.