I have two questions. (1) I want to generate estimates of gross output at industry-by-district level based on total sales value of business establishments. What additions/deductions do I need to make to the total sales value to arrive at the gross output figure for an establishment or industry. (2) Once I have arrived at gross output for industry, then I need to generate estimates of aggregate gross output for the whole economy. To arrive at aggregate gross output for the whole economy, do I simply need to take sum of gross output of all establishments, or there is a particular methodology for this purpose.
I am doing this for Zambian economy. Actually the problem is that when I take the aggregate sum of total sales value of all establishments in the economy, and compare it with an estimate of aggregate gross output published by a government report, I find my aggregate sum of total sales value exceeding the aggregate gross output in the publication. It exceeds by a huge difference. So, what could be possible reasons? Is it that I miss out any deductions? or there could be some other reasons?
Hi Irfan,
The challenge you face is that your process involves double counting intermediate goods. For example, when you count the output of the industry that produces cotton cloth (which will be an intermediate good in this example) and count the value of cotton shirts (which will be a final good), the cotton content is counted twice. However, we expect that the price of a shirt embodies all of the resources used to manufacture it and deliver it. So it the price of the shirt is $10 and the cotton fabric in a shirt is $2, then the market value of the final good (i.e., the shirt) is $10 and it includes the $2 cotton in it. The process you mentioned above would have $12 as a simple aggregation.
Although it might be an interesting exercise to estimate the "...aggregate gross output for the whole economy..." as you indicated in Point 2 above; however, the GDP of Zambia has already been calculated and reported. The CIA Factbook reports it as $20.57 billion (2016 est.) at the official exchange rate.
Your process is a helpful learning guide. I hope this helps.
Rob
Thank you Rob Catlett for the explanation, but the confusion is still there. I totally agree with you on double counting problem. However, the main problem is that my estimate of aggregate sales value from the economic census dataset exceeds the estimate of gross output published by the CSO, and the difference is huge. The double counting problem you mentioned would affect both my estimate of aggregate sales value and the government's estimate of gross output. My basic purpose is not to estimate aggregate gross output or aggregate sales value for the economy, rather I am generating the estimates of gross output at industry-by-district level (for 72 districts), which is not available in any report as per my knowledge. I was interested to generate GDP estimates, but unfortunately I have only a portion of the economic census dataset containing only sales value at business establishment level. So, I thought if not GDP, I can analyze gross output at district level to get a picture from production side. I am comparing aggregate sales value with the CSO's aggregate gross output just to confirm whether the dataset I have is a correct version of the economic census dataset. But I am aghast to see that the estimate is higher than the CSO's gross output by multiple times.
Hi Irfan,
You are much closer to the actual data sources; however, it is likely that the summation of industry output is a multiple of GDP.
An example might help here. Consider a cotton shirt that sells for $10. In the beginning a farmer grows cotton and sells it (let's say the amount of cotton needed for this is $2; however, the farmer probably bought fuel, seeds, chemicals, and the like; these should not be more than $2 in this example and let's say this subtotal is $1. The cotton is refined and woven into cotton cloth; let's say this cotton cloth sells for $4. The fabric may be printed, dyed, or something else somewhere along the line; this sells for $5. The shirt maker uses the printed cotton cloth along with thread, sewing machines, and other things. The shirt-maker pays for accounting, marketing, legal advice, inventory control, and many other things. Transportation is probably in many of these steps and although I am not including these here, they are included it as $1.25. Packaging might be $0.75. So, in this example we see $1 + $2 + $4 + $5 +$1.25 +$0.75 + $10 = $24. Many industries are involved and my quick example probably understates the double counting.
Smaller regions would tend to reduce this multiple, especially if the goods produced have significant imports from other regions. I hope this helps.
Rob
To generate estimates of gross output based on the total sales value of a business establishment, you can use methods such as input-output analysis, where you analyze the relationships between different sectors of the economy to estimate the total value of goods and services produced. Additionally, you can utilize statistical modeling techniques like regression analysis to estimate gross output based on factors such as sales value, production inputs, and industry-specific variables.
- Badges
- Science topic
- Similar topics
- Correction