1. 1 ESCWA/UNSD Expert Group Meeting on National Accounts 12-14 May 2009, Cairo, Egypt Gulab Singh UN Statistics Division Exhaustive Measurement of Economy

2. Introduction  Good quality national accounts are vital for economic policy making and research.  An important aspect of their quality is the extent to which they cover all economic activities.  Exhaustive coverage is difficult to achieve because of the wide range of economic activities, some of which are deliberately concealed from observation by those responsible for them

3. Exhaustive Measurement of Economy  Lack of coverage causes problems for users both in terms of levels and trends  Levels  GDP and other data downward biased – inaccurate impression of economy  Great significance in situations - monetary contributions made/received by a country depend on its GDP or when poverty is measured by GDP per head etc.  Trends  Biases in trend estimates can be expected if the economic activities missing from GDP grow at different rates from those included  For National Accountants, lack of coverage causes imbalances in the internal consistency of the accounts

4. Notions of non-observed economy  In measuring the activities within 2008 SNA production boundary exhaustively, the 5 problem areas that are most likely to be non-observed are:  Underground  Illegal  Informal sector  Household production for self consumption  Deficiencies of basic data collection programme. [OECD manual (2002) on Non-Observed Economy (NOE)]

5. Notions of non-observed economy  Clearly, the NOE problem areas are not mutually exclusive.  Activities not included in the basic data because they are in one or more of these problem areas are collectively said to comprise the NOE.  Measurement of NOE involves action on two fronts:  Improvements in direct measurement by the data collection programme, resulting in fewer non- observed activities and hence fewer non-measured activities; and  Improvements in indirect measurement during compilation of the national accounts, resulting in fewer non-measured activities.

6. NOE problem areas 1. Underground Production  Certain economic activities which are legal are deliberately concealed from public authorities for the following reasons  Avoid payment of taxes  Avoid payment of social security contributions  Avoid meeting legal standards –min wages  Borderline between underground and illegal production is not entirely clear  SNA rule of thumb  Underground activities are those not complying with administrative rules,  Illegal activities are associated with criminal behaviour  For NA purposes precise demarcation is not required

7. NOE problem areas 2. Illegal Production  All illegal activities that fit the characteristics of transactions are treated the same way as legal activities  Two categories of illegal production included in SNA production boundary  Production of goods and services whose production, sale or mere possession is forbidden by law; and  Legal activities undertaken by unauthorized producers  Differences in the boundary between countries, or changes in the boundary within a country over time, can cause inconsistencies

8. NOE problem areas 3. Informal Sector Production – discussed in separate session 4. Household Production for own final use  Production undertaken by household unincorporated enterprises exclusively for own final use is not part of the informal sector  Some household production activities are on a very small scale. Thus, SNA suggests a criterion of significance for deciding whether or not to record the production of a particular good. Only if the amount produced is believed to be quantitatively important in relation to the total supply of that good in the country should it be estimated

9. NOE problem areas 5. Production Missed Due to Deficiencies in Data Collection Programme  Sometimes referred to as the statistical underground  Under coverage of enterprises. Enterprises, or parts of them, are excluded from the data collection programme though in principle they should have been included - new unit, below size cut off, misclassification  Non-response by enterprises. Enterprises are included in the sample but no data are collected from them and no imputation is made for the missing observations.  Underreporting by enterprises. Data are obtained from enterprises, but are misreported in such a way as to underreport value added, or correct data are received but are inappropriately edited or weighted.

10. Exhaustiveness - NA methods Indirect methods of covering NOE in the GDP estimate:  Supply based approaches, including labour input method;  Demand based approaches;  Income based approaches;  Commodity flow approaches.  Labour Input Method (LIM) is the most important procedure that has been use since 1950s to measure contribution of unorganised sector to GDP.

11. Labour Input Method  The labour input method (LIM) of estimating value added/output for an economic activity or a group of economic activities consists of:  Obtaining an estimate of labour input from Population Census and/or Labour Force Survey (LFS);  Obtaining estimates of output or value added per unit of labour input from Establishment Survey; and  Multiplying the estimate of labour input by the estimate of per unit value added/output to arrive at an aggregate estimate of value added/output.

12. Issues for discussion  Country experiences for measuring the NOE  Illegal, underground activities;  Own-account non-agricultural goods production solely for own final use  Statistical underground  Informal sector enterprises (next session)  In the absence of up-to-date business register, additional NOE problem area would include  ‘new establishments’ that are born after the last Economic Census and not registered with the concerned authority.

13. Thank You