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Recent Developments in the Scottish Input-Output Tables
Maria Melling, Scottish Executive
Background
The Scottish Executive has a long history of producing Input-Output tables. These tables provide a complete picture of the flows of goods and services in the economy for a given year, illustrating the relationship between producers and consumers and the interdependencies of industries. The first, constructed in collaboration with the Fraser of Allander Institute, related to 1973. More recently, they have been published annually by the Scottish Executive since 1989.
The annual tables represent a snapshot of the economy for a particular year and are compiled using the latest data available at that time from a wide range of sources. No attempt has been made to date to re-visit earlier tables to take into account data updates and revisions, or methodological improvements.
The Scottish Executive has consulted users, in particular with the Scottish Economic Statistics Consultants' Group ( SESCG1) and the recently established Input-Output Expert User Group, to take stock of the current position and to take the opportunity to develop a new system which offers more flexibility to users and allows analyses to be carried out over time on a consistent basis.
This paper provides detail on the work that has been undertaken over the past year and the developments that are being planned for the near future.
Reasons for Change
The previous Input-Output system was, in the main, structured around a large number of inter-linked spreadsheets. The complexity of this system - its sheer size and unwieldiness - had limited its flexibility and usefulness. Firstly, methodological improvements generally had been tackled by adding or amending sheets or sections to the existing structure, adding to the complexity of the system. Secondly, changes in data and methodology could only be applied to the most recent year under construction, resulting in inconsistencies with previous years. Thirdly, the dimensions of the system were fixed; and so, aggregation or disaggregation of industrial sectors was a major exercise, requiring each of the component spreadsheets to be amended individually.
The new system, which is currently being used to construct the 2003 tables, due to be published in December, uses spreadsheets only for basic data entry and analysis, and the SAS2 system for data processing and matrix manipulation. This has been written to facilitate the creation of long-run consistent series, and to provide more flexibility to users.
The new system has also provided an opportunity to undertake a more detailed analysis of the treatment of taxes and margins.
Consistency with other Scottish macro-economic Outputs
The Input-Output tables perform a central function in the construction of a wide range of macro-economic statistics estimates produced by the Scottish Executive. As a starting point for this exercise, the Input-Output framework was reviewed in this wider context to ensure consistency between the various outputs.
GDP weights
For the last two years, the Input-Output tables have been given a much more central role in the production of economic statistics for Scotland. This began with the move to chain-linked GDP estimates. Through a carefully managed exercise each year, the final Input-Output estimates of GVA are consistent with both the Regional Accounts estimates of GVA for Scotland, at their 32 group level, and also with the weights that are used in the production of the Scottish quarterly GDP series.
Exports
Global Connections Survey ( GCS) data were collected for the first time in 2002. The results of this survey were incorporated into the 2002 Input-Output tables underpinning the Exports column although there were a number of issues that needed to be addressed beforehand.
The GCS is based on Standard Industrial Classifications ( SICs) from the Inter Departmental Business Register ( IDBR) whereas Input-Output is based on the Annual Business Inquiries ( ABI). Companies can sometimes be split over a number of different SICs. Some companies are therefore classified under a different industry in the Input-Output tables. To resolve this inconsistency, a set of scaling factors were calculated to bring the GCS data in line with the Input-Output tables.
The MAKE matrix was used to transform the industry level GCS into commodities for Input-Output use, except for the four distribution industries. These were treated separately because the exports for these commodities should only include the value added component of the export, whereas the data from the GCS include margins too. These margins are estimated and re-allocated. Further consideration was needed to adjust for GCS data which included goods which have been imported and then exported, such as purchases of imported products by tourists visiting Scotland.
Adjustments were made for Tourist Expenditure generally. The GCS data includes exports due to tourism estimates while the Input-Output tables have a separate column to take account of this. The tourism therefore had to be removed and re-allocated.
As a result of these adjustments, it is clear that the GCS estimates cannot be replicated easily from the Input-Output tables, but it is used as the starting point for the analysis and has helped to ensure that the exports estimates used are much more robust than previous figures.
Government Expenditure and Revenue for Scotland ( GERS)
Work has begun to consider the consistency of estimates of tax revenues in Scotland from the GERS exercise and from the Input-Output system. The two methods are constructed in different ways - for example, the GERS analysis relates to financial years and the Input-Output tables are constructed for calendar years. However, there are clear links, and it should be possible to make more use of the estimates from GERS to inform the balancing process.
Main Difference between Old and New System
Combined USE matrix
Since the 1989 Scottish Input-Output tables, a domestic USE matrix, which provides a breakdown of purchases of domestic products and services only, has been produced annually (except for 1997) as a result of the balancing process. From 2003, the balance will produce a combined USE matrix (detailing all purchases), consistent with the UK, at purchasers' prices rather than at basic prices. The domestic USE matrix will then be produced as a derivative.
Manual Balancing
The method for balancing the tables has been reviewed and improved. The UK uses the RAS procedure (a systematic process to ensure row and column totals of a matrix agree with known totals) as the final stage of their balancing process to make very small final adjustments to the tables. Most of the checking and changing is carried out manually in stages before arriving at an almost final set and then the RAS procedure makes small changes ensuring the tables are balanced. It is not therefore being used to make large changes which could make a significant difference to the structure of the tables. The new approach gives much more control when balancing the tables.
In the previous Scottish system, extensive use was made of the RAS procedure as part of the checking mechanism for the Input-Output tables. In some instances this required RAS to make large changes in order to find a balance. This, in itself, could cause problems because the resultant matrices might be quite different from those anticipated, depending on how the large discrepancies were being allocated. Many iterations of the balancing process were therefore necessary as discrepancies were explained and resolved.
In the new system, there is much more focus on manually checking the raw matrices to resolve data discrepancies at an early stage. A comprehensive and detailed set of checking spreadsheets has been set up to aid this process, which allows a variety of adjustments to be made to a single or range of cells.
Flexible system
The new system has been written with flexibility in mind from the start. The main processing stages are now carried out in SAS which makes it much more efficient and more able to handle the large amounts of data that are used to inform IO balances. The programmes have been written generically so that table dimensions, for example, can be changed, and changes to assumptions and methodologies can be applied more easily. This will also allow the Input-Output tables to adapt more easily to changes in the structure of the economy, changes in classification or changes that are required because of the disclosiveness of industry level data.
Tax system
The part of the system that calculates taxes and margins has been rewritten.
Product Taxes are based on the UK product tax total/ UK Supply total ratio for each commodity, with the exception of import duty (also known as protective duties) which is based on the UK tax to imports ratio. Separate matrices are then derived for Scotland and incorporated into the system.
In order to produce the domestic USE matrix at basic prices (which forms the basis for calculating the symmetric matrices and multipliers) taxes and margins are estimated and removed in a specific order depending on when this occurs as a commodity makes the journey from production to consumption by a final demand sector. Clearly, any small change to a tax or margin will consequently affect the balance.
The advantage of the new system is that when taxes ( VAT and others), margins and imports are stripped out from balanced tables at purchases prices, the tables still balance. Adjustments are simply made within the matrix - for example when VAT is stripped out of the USE matrix, it is offset by adding it into the Taxes less subsidies GVA row in Primary Inputs. This ensures that the tables remain balanced. The same is done for other taxes, margins and imports. This new process helps also to identify anomalies in the data.
Future Developments
Once the 2003 tables have been published, the earlier tables will be incorporated into the new system. Further analysis will be undertaken to ensure that, for each year, the balancing process is carried out on a consistent basis, and the latest estimates of the constraining variables are always adopted. This will then allow users to perform analyses over time which are consistent with other published time-series data.
Tailor made Analysis
Flexibility has been a key consideration in the set up and structure of the new Input-Output system. One of the main reasons for this is to try and provide a better service to users. It will now be possible to provide summaries of the tables in different formats to suit purposes.
Changing dimensions
The flexibility of the system will allow tables to reflect more appropriately structural changes in the economy, by aggregating or disaggregating series to reflect their relative importance. In addition, this will allow for future changes, in particular addressing any forthcoming changes as a consequence of the revised 2007 industrial classifications.
Revisions Policy
This year, work will also begin on the development of a detailed revisions policy for Input-Output. This will consider changes and revisions in the sources data, in particular data that are used as constraining variables such as Regional Accounts, ABI and the Global Connections Survey. Such a policy will consider the best time to accommodate such changes in light of the various components produced throughout the year.
Consistent tables
Once a consistent set of tables has been produced, users will be consulted through the Input-Output Expert User Group about how best to use the revised data and to share analysis and research.
Conclusion
Over the past three years, a considerable amount of planning and rethinking of the Scottish Input-Output system has taken place. The tables for 2003, due to be published in December, will be produced using a new, flexible and robust system that will allow much more and better interrogation of the data than has been possible in the past. These developments will ensure that the system can cope with any number of potential changes in the foreseeable future.
The investment of time and resources that has taken place over the last few years will ensure that the Scottish Input-Output tables can cement their position at the core of official economic statistics by building on this strong basis and expanding the awareness, use and potential of the tables for analysis of the Scottish economy both within and outside the Scottish Executive.
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