The Problem of Constructing Time Series of Russian Input-Output Accounts for Use in International Projects Edward F. Baranov Igor A. Kim Dmitri I. Piontkovski Elena A. Staritsyna Higher School of Economics (Moscow, Russia) Introduction Comparisonsfor international projects such as WORLD KLEMS1 require both the availability and the constant replenishment of the annual time series of Input-Output (IO) accounts at current and constant prices. For these purposes, the IO accounts have to adhere to a uniform nomenclature of products and economic activities in accordance with international standards. Statistical agencies and research organizations within the USSR gathered considerable experience in constructing inter-industry balances and using them for planning and forecasting activities. This experience has served as a precondition for the continued construction of IO accounts in the Russian Federation in the post-Soviet period2. The Russian Federal State Statistical Service (Rosstat) developed benchmark IO accounts for 1995, and annual IO accounts in the aggregate nomenclature for the period from 1996 to 2003 at current prices in accordance with the methodology for the System of National Accounts (SNA). IO accounts for 1996-2003 were built by extrapolating the cost structure of products and services for 1995 based on the SNA indicators for Russia. However, these time series of IO accounts were constructed based on classifications of products and industries inherited from the Soviet period, namely, the All-Union Classifier of Economy Branches (OKONH) and the All-Union Product Nomenclature (OKP). Since 2004, the transition of Russian statistics to the All-Russian Classification System of Economic Production (OKVED) harmonized with the NACE rev. 1 classification and the AllRussian Classifier of Products by Activity (OKPD) harmonized with the CPA3 classification has led to a break in the construction of IO accounts. The construction of benchmark IO accounts based on the new classifications for 2011 will be completed at the end of 2015. 1 The abbreviation KLEMS consists of the initial letters of different types of inputs used for productivity accounting: capital K, labor L, energy E, materials M and services S. 2 In post-Soviet period the IO accounts of the Russian economy are presented in nine tables: the supply table, use tables at basic and purchasers’ prices, domestic and imported use tables at basic prices, transport and trade margins tables, table of net taxes on products and a product-by-product input-output table at basic prices. 3 In the following discussion, we will use “NACE rev. 1/CPA” rather than “OKVED/OKPD”. 1 The gap in the time series of Russian IO accounts has been addressed by international projects designed to develop a worldwide database using national inter-industry statistics. As part of the World Input-Output Database (WIOD) project, an approach to constructing the time series of IO accounts based on the NACE rev. 1/CPA classifications was proposed [Timmer (eds.), 2012]. The time series of supply and use tables at current and previous year prices for 35 industries and 59 types of products, as well as symmetric input-output tables at current prices for 35 industries in the Russian Federation for the period from 1995 to 2011 were developed. To create a time series of supply and use tables for Russia, developers used detailed benchmark IO accounts for 1995 recalculated from the OKONH -NACE rev. 1 classification using the official concordance tables the OKONH /the OKVED harmonized with the NACE rev. 1 classification [The Ministry of Economic Development, 2002]. Then, on the basis of the transformed IO accounts, they constructed a time series of supply and use tables using modern methods of balancing and constructing time series, SUT-RAS [Temurshoev, Timmer, 2011]. Compliance with methodological uniformity in terms of harmonization and standardization, as well as in the procedures for constructing a time series of national IO accounts, not only guarantee the compatibility of the WIOD database among different countries but also expands its analytical capacity. However, such methodological unification does not always consider the measurement specifics of countries with economies in transition. Meanwhile, measurement problems in countries with economies in transition are exacerbated sharply compared to countries with more stable economies. In particular, the transition process in Russia is characterized by high inflation (over the entire reform period, prices rose by five orders of magnitude), large-scale changes in relative prices and an extremely deep and prolonged transformational recession, followed by an intensive recovery and growth [Bessonov, 2005]. Therefore, calculations of IO accounts for the period from 1995 to 2011 using the proportions of 1995 will inevitably lead to a shift in inter-industry proportions. These displacements become larger with the passage of more and more time after 1995. Measurement problems inherent in a transitional economy are added to purely statistical difficulties including a lack of totals from the SNA based on the NACE rev. 1/CPA classifications for supply and use tables for the period before 2002, as well as frequent methodological changes and other statistical innovations. In contrast with the WIOD project, in which developers take the initiative in forming the database, participation in another project, the Global Trade Analysis Project (GTAP), fulfills certain requirements in terms of statistical data from the participating countries themselves. For Russia’s participation in the GTAP, the Centre for Economic and Financial Research (CEFIR) 2 prepared a database of IO accounts for 2003 based on the ISIC rev.3/CPA classifications for Russia [Tourdyeva, Shrebela, 2008]. For this purpose, they converted and disaggregated officially published symmetric input-output tables for 2003 from 22 to 59 types of goods and services, and subsequently adjusted to the GTAP format. Recalculation and disaggregation of the symmetric table were performed using the same official concordance tables and a symmetric input-output table for 1995 as in the WIOD project. However, in these investigations the authors use the official concordance tables, which can only be employed for situations where one NACE rev. 1 activity corresponds to one or more industries based on the Soviet classification. In cases where an OKONH industry is distributed among several NACE rev. 1 activities, there is a need to identify the quantitative proportions of the distribution between the codes within these classifications. However, the NACE rev. 1 information necessary for carrying out this procedure for 1995 is missing. Therefore, we can assume that in order to convert IO accounts into new classifications, our foreign and Russian colleagues would inevitably have been forced to derive such quantitative proportions using a priori considerations. As is evident from the WIOD tables on the Russian Federation, they likely considered in all cases that an industry based on the OKONH classification corresponded to only one type of activity based on the NACE rev. 1 classification, which is not always the case. Another problem in the database construction for Russia is that information constraints forced developers to use simplistic assumptions in the construction of indicators and tables. For example, simplistic approaches were used in the construction of valuation matrices, trade and transport margins in the WIOD methodology [Timmer (eds.), 2012, p.22-23]. However, the development of the SNA in Russia, including the construction of detailed production accounts based on the NACE rev.1 by Rosstat, and the accumulation of unpublished data, created the prerequisites necessary to derive IO accounts based on NACE rev.1/CPA for 2003-2010. In our study we selected 2003 as the starting point for the conversion of IO accounts into new classifications because the minimum necessary information to develop reliable transformation matrices containing quantitative proportions between the OKONH and NACE rev. 1 classifications is only available for that year. This study includes the following official and unpublished data from Rosstat: the last IO accounts based on the Soviet Classifications for 24 groups of industries and products for 2003. • unpublished detailed use table at purchasers' prices for 2003. 3 • detailed data for production accounts based on the NACE rev.1/CPA (at ta level of disaggregation which was appropriated from the data used in KLEMS) for 2003 and subsequent years. • a detailed production matrix based on NACE rev.1 for 2003 and subsequent years. • trade margins by product, transport margins by product, net taxes on products by product and imports by product for 2003. In addition, export and import data in the detailed nomenclature from the Federal Customs Service, which is combined with data from the Bank of Russia is used. As Rosstat is developing a production matrix based on the new classifications (for internal use), in this paper, we focus on the conversion into the new classifications of only five use tables (of domestic production at basic prices, of imports at basic prices, valuation matrices for trade margins, transport margins and net taxes on products), which add up to use table at purchasers' prices. Then, these converted tables for 2003 are used as the basis for constructing a time series of use tables and valuation matrices for 2004 and subsequent years. The degree of detailed unpublished data on the OKONH basis and detailed data on the production account allow us to obtain use tables at basic prices and valuation matrices on a NACE rev.1/CPA basis for 42 types of commodities and economic activities. The present report briefly summarizes the results of the 2010-2014 study [Baranov et al., 2014]). It has the following structure: The first section presents the main methodological problems associated with conversion of use tables and valuation matrices for 2003 from the Soviet classifications into the NACE rev.1/CPA. Section 2 describes a two-step iterative procedure for conducting this conversion. Section 3 provides an algorithm for constructing time series of use tables and valuation matrices at current prices based on converted tables for 2003, as well as a description of the our plan to recalculate these tables at constant prices. Finally, we summarize our results and suggest the main areas for further research. The main methodological problems In the conversion of use tables and valuation matrices for 2003 from the Soviet Classifications into NACE rev.1/CPA classifications, we face a number of methodological difficulties: Detailed unpublished data from Rosstat based on the Soviet classifications can only obtained at purchasers' prices. 4 For each of the initial five tables there must be transformation matrices to convert use tables and valuation matrices from OKONH/OKP to the NACE rev.1/CPA separately for the matrix of intermediate consumption and matrix of final demand. Transformation matrices have to involve the numerical values. The approach is motivated by the fundamental differences between the Soviet and NACE rev.1 classifications and considerable changes in the indicators of output, intermediate consumption and value added from the production account as a whole for 2003, as well as in the detailed classification. These changes in the indicators can be explained not only by the reclassification of the sector profile of establishments, but also by changes in the calculations in the methodology. However, we possess only the information to construct transformation matrices for the use table of domestic production and the use table of imports at basic prices. In addition, in the process of developing of our use table, the methodological changes regarding the treatment of financial intermediation services indirectly measured (FISIM) are taken into account. FISIM are allocated across using industries. After the adjustment with respect to common concepts, the intermediate consumption by types of activities increases by an average of 1.5‒2%. The iteration procedure for the conversion of use tables and valuation matrices from the Soviet classifications into the NACE rev.1/CPA classifications In order to overcome the problems posed by the lack of information for constructing transformation matrices for valuation matrices we develop a two-step procedure. In the 1st step we disaggregate detailed unpublished use table at purchasers’ prices based on OKONH into its five components (the matrices of intermediate consumption and final demand of each table contains 95 rows and 127 columns) using official data on use tables and valuation matrices as restrictions (the matrices of intermediate consumption and final demand the of each table contains 24 rows and 34 columns). Then we simultaneously balance these matrices of all five calculated tables. To accomplish this, we use the GRAS algorithm by [Junius, Oosterhaven, 2003] in the version of [Lenzen et al., 2009, subsection 3.1]. In the 2nd step we transform disaggregated and balanced these tables from the Soviet classification into the NACE rev.1/CPA. This conversion is carried out for each of use tables and valuation matrices separately for the matrix of intermediate consumption and the matrix of final demand using appropriate transformation matrices. 5 The missing transformation matrices for the valuation matrices are calculated using the ratio of the elements of valuation matrices to the sum of the elements of use tables of domestic production and imports in Soviet classifications and transformation matrices for use table of domestic production and use table of imports. The final balancing of all converted tables is carried out using a version of GRAS. Sequence of procedures for the construction of the use tables and valuation matrices at current prices and constant prices for 2004 and subsequent years In our case, the use of the classical RAS procedure [Miller and Blair, 2009] is difficult because there is no information to adequately determine the total intermediate uses for 2004 and subsequent years. Therefore, in this research, taking into account the fact that for 2004 and subsequent years it may be possible to establish reliable summary totals by row for matrix of intermediate consumption and matrix of final demand, the modified RAS method is applied to rectangular matrices, comprising intermediate consumption and final demand. Besides, the presence of additional exogenous information about the values of individual interior cells is suggested (see Fig. 1). This idea is taken from [Paelinck and Waelbroeck, 1963]. А (2004) B(2004) C (2004) D(2004) E (2004) Matrix of Total supply Matrix on final at basic intermediate demand prices consumption (from Rosstat supply table ) total of used domestic goods and services (2004) total of used import (2004 ) total of trade margins (2004) total of transport margins (2004) Exogenous cells total of net taxes (2004) A – use table of domestically produced goods at basic prices 6 B – use table of imports at basic prices C – table of transport margins D – table of trade margins E – table of net taxes on products Figure 1. Construction of five tables at basic prices making up the use tables at purchasers' price. From a methodological point of view, the deflators needed for constructing the use tables at the constant prices, should be calculated from the monthly Producer Price Index (PPI) data. However, the Rosstat data covers mostly price indices for goods (and these indices are too aggregated), while for services only transport and communication indices are available. Therefore, we plan to construct deflators for more disaggregated products (using unpublished information). Besides, the composition of the detailed products and services can vary significantly for different cells of one row, depending on the exact cost structure of each element. Thus, the deflators should be different for each cell instead of being uniform for the whole row. Unfortunately, at this stage of our research we do not have enough information to implement such a differentiation and are forced to use a single deflator for each row. Conclusion As a result of this research, the following results are obtained: We have developed a methodology for converting use tables at basic prices and valuation matrices that were published based on Soviet classifications for 2003 into the NACE rev. 1/CPA classifications. We have developed a two-stage biproportional method generalizing the RAS procedure for the projection of use tables and valuation matrices for 2004 and subsequent years based on the use tables and valuation matrices for 2003. We have conducted the first calculations for transforming use tables and valuation matrices for 2003 into the NACE rev. 1/CPA and constructing a time series of these tables for the period from 2004 to 2006 on the basis of transformed tables for 2003. Further research priorities include: • • the testing of different projection methods apart from RAS to select the most preferred in a Russian context; • examining backward projection possibilities for the period prior to 2003 (considering the absence of official Rosstat SNA data in the NACE rev.1 for this period). 7 After the publication of detailed Russian SUT for 2011 by Rosstat, all our time-series need to be reconciled. References Baranov E.F., Kim I.A., Piontkovski D.I., Staritsyna E.A. (2014) Problems of Constructing Russian Input-Output Tables into the International Classifications // HSE Economic Journal. Vol. 18, No. 1. pp. 7–42. (In Russian). Bessonov V.A. Problems of Analysis of Russia's Macroeconomic Dynamics in the Transitional Period. − Moscow.: IET, 2005. 244 p. (In Russian). Erumban A.E., Gouma R., Timmer M., de Vries G., de Vries K. Sources for National Supply and Use Table Input files, background document downloadable at www.wiod.org. Junius, T., Oosterhaven, J. (2003) The solution of updating or regionalizing a matrix with both positive and negative entries // Economic Systems Research. Vol. 15, No. 1, pp. 87–96. Lenzen, M., Gallego B. and Wood R. (2009) Matrix Balancing under Conflicting Information // Economic Systems Research. Vol. 21, No. 1, pp. 23–44. Miller R.E., Blair P.D. (2009) Input-Output Analysis: Foundations and Extensions, 2nd edition. – Cambridge University Press. xxxii+750 p. Ministry of Economic Development of the Russian Federation (2002) OKONH– NACE rev.1 Conversion factor. – Moscow: Ministry for Economic Development of Russian Federation. The Center for Economic Classifications, 2002. (In Russian). Paelinck, J., Waelbroeck, J. (1963) Etude empirique sur l’e´volution de coefficients ‘input–output’: essai d’application de la proce´dure RAS de Cambridge au tableau industriel belge // Economie Applique´e, 16, pp. 81–111. Timmer M. (eds.) The World Input-Output Database (WIOD): Contents, Sources and Methods. 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