Regional GDP Workshop
Purpose of the Project
Regional GDP Scope
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Annual
Current price (nominal) GDP
By region and industry
Using the production approach
October 6 2005 - Regional GDP Workshop
Components of GDP
Intermediate Consumption
Compensation of Employees
Operating Surplus and Consumption of Fixed Capital
Net Indirect Taxes
Output
October 6 2005 - Regional GDP Workshop
How to measure regional GDP
Two main approaches
1.Indirect
Uses a variable with a regional dimension
correlated with GDP, e.g.
– employment numbers
– wages paid
October 6 2005 - Regional GDP Workshop
2. Direct
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Based on direct surveying of units and
their transactions.
Builds up GDP in the same way that
the national accounts are compiled.
October 6 2005 - Regional GDP Workshop
Issues With Direct Approach
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Units with regional dimension needed
Complex
Depends on data availability
Heavy data requirements
More expensive than alternatives
Not particularly timely
Still preferred method though
October 6 2005 - Regional GDP Workshop
The Direct Approach
Direct is preferred because
• It reflects national accounts methods
• Allows estimation by unit
• Avoids assumptions such as constant
employment to value added ratios
• Allows us to compile individual
aggregates by summing source data
• We have the data (AES)
October 6 2005 - Regional GDP Workshop
What method do we choose?
• No existing economic collection is completely
suitable for estimating regional GDP
• Method will be data driven
• We are assessing
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What source data might be suitable
Where the gaps are
Costs of filling the gaps
The most appropriate methodological choice
October 6 2005 - Regional GDP Workshop
Deliverables & Timing
Main Stages
Evaluation and proposed
methodology
Mid-Oct 2005
Compilation begins. Update on
progress to MED
End 2005
Compilation complete
July 2006
Final project report drafted
Sept 2006
Final project report published
End 2006
October 6 2005 - Regional GDP Workshop
Data Evaluation
• Identify potential regional GDP data
(regional / economic)
• Evaluate and list characteristics
• Many economic data sources not
designed regionally – but still evaluated
• Many regional data sources not on a
National Accounting basis
October 6 2005 - Regional GDP Workshop
Methodology
• Review international best practice
• European Statistical Commission
(Eurostat) – also prefers ‘direct’
approach
• Concepts and classifications
• Integrate data evaluation and
methodology review
October 6 2005 - Regional GDP Workshop
Compilation
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Follow the “road map”
Compile estimates
Analyse and compare estimates
Quality assessment important as there
should be “something” produced
• Determine how weak areas can be
improved
October 6 2005 - Regional GDP Workshop
Final Report
• Feasibility of producing regional GDP
on an ongoing basis
• Release depends on quality of regional
GDP series
• Future Recommendations depend on
feasibility. If not feasible, the
recommendations will focus on how the
series could be made feasible
October 6 2005 - Regional GDP Workshop
Concepts & Classifications
A brief look at the main concepts
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Statistical unit
Residency
Region
Industry
October 6 2005 - Regional GDP Workshop
Statistical units
•Enterprise
An ‘owning’ unit making financial decisions on behalf of the
producer units.
• Kind of Activity Unit (KAU)
Producer of goods and services which is classified to industries
and from which financial information is collected.
• Geographic unit (GEO)
A ‘location’ unit at which economic activity is carried out. Does not
have financial information.
• Has employment related information.
• Can be classified to region
• Can be classified to industry
October 6 2005 - Regional GDP Workshop
What kind of unit do we need?
• A production unit (KAU), but which can
be located in a region
• We’ll call it the Local KAU
October 6 2005 - Regional GDP Workshop
The Local KAU
• Will be estimated from the regional
information given by the GEO
• Will have the same industry
classification as its ‘parent’ KAU
• Must have labour and/or capital
October 6 2005 - Regional GDP Workshop
Assumptions about statistical units
• The existence of a GEO on our
business register will be considered
enough evidence for us to create a local
unit
• Where factors of production are
identified but no corresponding stat unit
exists, e.g. GEO, we will attempt to
create a local KAU.
October 6 2005 - Regional GDP Workshop
Issues with Statistical Units
– Local KAU. We don’t have one
– Factors of production in one region but
producer unit in another
– Mobile equipment. What to do when capital
assets move between regions
– Fixed capital that spans regions
– Capital intensive industries
October 6 2005 - Regional GDP Workshop
Residency
1. Residence concept
• allocates value added to the region
where the production unit is resident
• based on the physical and legal
existence of a unit in a region
October 6 2005 - Regional GDP Workshop
Residency contd …
1. Territory concept
• Allocates activity to the region where it
takes place
• Reflects the activity of labour and
capital operating in a region
regardless of where the ‘owning’
production unit is located.
October 6 2005 - Regional GDP Workshop
Which residency concept to adopt?
• We adopt the Residence principle.
• Allows us to build up regional GDP
using the direct method.
• But …
October 6 2005 - Regional GDP Workshop
Creation of local KAUs
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Where we identify factors of
production we will establish local
KAUs
So we identify activity taking place at
particular locations – a territory
concept!
October 6 2005 - Regional GDP Workshop
Issues with residency
• NZ lacks a ‘local KAU’ in its statistical
unit classification so assigning
residency criteria can be difficult
– Assigning residency to factors of
production that move around
– No ‘unit’ exists but factors of production are
present.
October 6 2005 - Regional GDP Workshop
Special cases.
Residency and Statistical Units
• Special cases involve:
– Multiregional activity
– Factors of production in one region but
owner/operator in another
– What industry classifications do we want?
– Mobile equipment. Capital assets moving between
regions
– Fixed assets that cross regions such as roads
– Capital intensive industries
October 6 2005 - Regional GDP Workshop
Region
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Propose 16 regions
12 regional council areas
4 unitary authorities
All regions treated equally in the study
Smaller regions a good test of
feasibility
October 6 2005 - Regional GDP Workshop
North Island
October 6 2005 - Regional GDP Workshop
South Island
October 6 2005 - Regional GDP Workshop
Industry
• Will test the feasibility of producing
regional series by 30 industry groups
• May have to aggregate to fewer groups
depending on quality and confidentiality
October 6 2005 - Regional GDP Workshop
National Accounts published industries
October 6 2005 - Regional GDP Workshop
Data & Methodology
Process to determine methodology
• Several potential approaches possible.
Direct (bottom-up) and Indirect (topdown)
• Direct approach needs to be
investigated
October 6 2005 - Regional GDP Workshop
Direct process
• Evaluate potential data sources
• Determine data source with most
potential
• No perfect data source out there. Need
mitigation strategies to make data
sources fit in better with regional GDP
requirements
October 6 2005 - Regional GDP Workshop
Provisional Estimate
• Unit record financial surveys (direct
sources) often not particularly timely
• Recognise there is demand for timely
regional GDP estimates
• Separate approach for timely
‘provisional estimates’ : lower quality,
more aggregated
October 6 2005 - Regional GDP Workshop
Annual Enterprise Survey (AES)
• Annual economic survey
• Main National Accounts source for
production side data by industry
October 6 2005 - Regional GDP Workshop
AES as a regional GDP source
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Unit data available by industry – yes
Components of GDP – yes
Financial information – yes
National Accounting basis – yes
Regional collection – no
Meets residency condition - no
October 6 2005 - Regional GDP Workshop
AES: residency
• Mitigation: investigate using separate
unit data that to better apportion AES
survey data across regions
October 6 2005 - Regional GDP Workshop
AES: collection design mitigation
• Mitigation strategy: identify weak areas.
Use alternative data sources.
October 6 2005 - Regional GDP Workshop
AES as a regional GDP source
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Unit data available by industry – yes
Components of GDP – yes
Financial information – yes
National Accounting basis – yes
Regional collection – work around
Meets residency condition – model
October 6 2005 - Regional GDP Workshop
Regional Economic Indicator (REI)
• Regionalised Business Activity Indicator
(BAI)
• Quarterly GST sales and purchases
• Net GST sales as proxy for GDP, many
conceptual differences though
• Only released at regional level
• AES preferred
October 6 2005 - Regional GDP Workshop
Role of Regional Economic Indicator
• Possible back-up data source where
there are gaps in AES coverage, or AES
sample errors are high
• Provisional estimate
October 6 2005 - Regional GDP Workshop
Linked Employer-Employee Data (LEED)
• Links IRD administrative data with the
SNZ Business Frame
• Available later this year
• Employment data (including salaries
and wages) by industry by region
October 6 2005 - Regional GDP Workshop
Role of Linked Employer-Employee Data
• Regional Compensation of Employees
component (using salaries and wages)
• Means to apportion AES data
• Could also be used for regional GDP
estimates where AES is weak
• Provisional estimate
October 6 2005 - Regional GDP Workshop
Industry methodology review
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AES proposed core data source
Gaps in coverage
Issues with mobile capital, networks etc
May be superior data sources for some
industries
• Review of methodology at the industry
level required
October 6 2005 - Regional GDP Workshop
End