The Final Consumption Expenditure of Households in Korea by YH95e8


									The Final Consumption Expenditure
      of Households in Korea

                                   Sangkyo HAN
            National Accounts Coordination Team
                  Economic Statistics Department
 I.   Introduction
 II. GDP by Expenditure Approach
 III. Estimation Method of the Final Consumption
      Expenditure of Household
 IV. Household Income & Expenditure Survey Evaluation
I. Introduction
• Korean System of National Accounts
  – Introduction of 1993 SNA in 2004 at the time of the 9th
    rebasing from 1995 to 2000

  – Additional implementation to 1993 SNA at the time of the
    10th rebasing from 2000 to 2005
     E.g. introduction of chain-linking method, recognition of
     valuables as a separate item of gross capital formation

  – 2008 SNA intended to be introduced in 2014 at the time of
    the 11th rebasing from 2005 to 2010
I. Introduction

• Three aspects from which Korean National Accounts
  statistics are measured
  – Production, Expenditure, Distribution

  – Broadly known as production approach, expenditure
    approach and income approach

• The final GDP aggregates are determined as GDP by
  production activities.
I. Introduction
• GDP by production
  – Data sources : survey data from the Statistics Korea, the BOK’s self
    survey data and administrative data from government agencies such as
    the National Tax Services (NTS)

• GDP by expenditure
  – Data sources : survey data from the Statistics Korea, corporate financial
    statement, administrative data, customs clearance statistics and BOP
    statistics, etc

• GDP by income(compiled annually for nominal value)
  – Data sources : GDP estimates by production and expenditure, data from
    government and social security agencies, administrative data from the
    NTS, business analysis data and employment statistics
Flow Chart on the Compilation of National Accounts Statistics

                              Collection of Source
                               Data (survey, etc.)
                                                        Check on Errors of
                                                           Source data
  - Output
  - Intermediate input        Estimation of GDP
  - Value added                 By production
                                                     Coincidence with annual
                                                        Input/output table
  - Consumption               Estimation of GDP
  - Gross capital formation    By expenditure
  - Export/Import
                                                     Check on appropriateness
                                                          of estimates
                              Conciliation of GDP
                               By production and       Estimation of GDP
                              GDP by expenditure            by income

                                 Press release
II. GDP by Expenditure Approach

• Conventional Estimating Process by Commodity
  Flow Method (CFM)
  – Calculate domestic gross output in production side

  – Derive total final demand by adding imports and deducting
    intermediate consumption and exports

  – Calculate each expenditure item by multiplying the total
    final demand by the weight of each item stemmed from I/O
    table in base year
II. GDP by Expenditure Approach

                The conventional estimating process by CFM

                                                                            Final consumption
 Total supply
                  ―                  ―             =
(Gross domestic       Intermediate                     Total domestic
                                         Exports                            Fixed investment
    output            consumption                         demand

  + Imports)


                                                        (weight on total domestic demand)
II. GDP by Expenditure Approach
• Problems revealed in CFM approach
   – Lack of independence in the estimates for some expenditure
     components of GDP

• Introduction of new statistical techniques employing
  both the supply-side and the demand-side statistics
   – Identifying economic trends more accurately by coping with changing
     statistical environments and by incorporating much more statistical data

   – Enhancing accuracy, reliability of statistics, and transparency

   – Ensuring objectivity of the estimation process recommended by IMF
III. Estimation Method of the Final
Consumption Expenditure of Household
• Calculate base year and annual(final) figures based on
  consumer expenditure data

• Calculate annual(preliminary) figures by sum of quarterly
  (preliminary) figures

• Calculate quarterly (preliminary) figures by extrapolating
  alternative indicators with the year-on-year rates of change
  from the same period of the previous year

   – Nominal figures by item and the total are estimated; then real figures
     are calculated using a deflation method (deflator=mainly CPI)
        Major Source Data Related to Household Final
                 Consumption Expenditure
                   Organiza-                    Date of
        Title                   Cycle                              Survey method                      Major information
                     tion                       release
                                                                     Face-to-face       Sales by sub-classes, the sales ratio to
Census of          Statistics   Every 5   Mar of the two years
                                                                      interview         consumers, etc. for the service
Service Industry    Korea        year     after reference date
                                                                 (investigator's entry) industry(excluding transportation sector)

Wholesale and                             Dec of the following                         Sales by industry of the wholesale and retail
                      〃         Annual                                    〃
Retail Survey                                     year                                 sectors for non-base year
Service Industry
                      〃           〃               〃                       〃            Sales of service industry for non-base year
Transport                                 Aug of the following
                      〃           〃                                       〃            Sales of the transportation industry
Survey                                            year
Household                                      Quarterly
Income and                                  (10th day of the     Housekeeping book Volume, structure and trend of income &
                      〃         Monthly
Expenditure                                second following      (respondent's entry) expenditure of households
Survey                                          month)
                                               Monthly               Face-to-face       Trend of retail sales in terms of business type and
Retail Sales
                      〃           〃           (following              interview         group of
                                              month-end)         (investigator's entry) goods

Service Industry                                                                       Value and volume indexes on sales-basis for the
                      〃           〃               〃                       〃
Activity Index                                                                         service industry
                                                                                       Producers' sales activities and trend of shipment
Shipment for
                      〃           〃               〃                       〃            of the mining and manufacturing industry by
domestic market
III-i. Estimation Method in Reference year

  Final consumption expenditure of household
   = Total expenditure in domestic market
   – Direct purchases in domestic market
     by non-resident households
   + Direct purchases abroad by resident households
III-i. Estimation Method in Reference year
• Total expenditure in domestic market
   – Total expenditure of goods
      • Estimated based on sales by industry using ratios of selling to
        household consumers in ‘the Census of Service Industry’
      • Disaggregated for expenditures by item using ‘Household
        Income & Expenditure Survey’ and other sources

   – Total expenditures on services
      • Based on ‘the Census of Service Industry’, ‘Household
        Income & Expenditure Survey’, and et cetera
III-i. Estimation Method in Reference year

• Direct purchases abroad by residents
  /Direct purchases in domestic market by non-residents
   – Compiled based on the estimates of the external transaction

   – Estimate data by reclassifying “Balance of Payments
     statistics (e.g. travel services and credit card usage)”
III-ii. Estimation Method in Current year

• Nominal value estimation method in current year
   – Principally calculated in the same method as in reference

   – Estimated on different grounding sources
     E.g. ‘Whole and Retail Trade Survey’, ‘The Service Industry Survey’,
      ‘The Service Industry Activity Index’, et cetera (instead of ‘The
      Census of Services Industry’)
III-ii. Estimation Method in Current year

• Real value estimation in current year
   – Estimated by dividing nominal value into related deflators

   – Nominal value exists under the COICOP classification

   – Add up nominal and real values by COICOP code to obtain
     the final consumption expenditure of households by
     purpose and by type
III-ii. Estimation Method in Current year

• Direct Purchases by residents and non-residents
   – Compiled based on external transaction account estimates

   – Deflators for Direct Purchases Abroad by Residents:
     Exchange-rate adjusted consumer price index of major
     travel countries

   – Deflators for Direct Purchases in Domestic Market by Non-
     residents : Domestic consumer price index
V. Household Income & Expenditure Survey

• Differences between National Accounts Statistics and
  Household Income & Expenditure Survey :
   ① Coverage (by subjects or by items)
   ② Bias due to the limitation of sampling method
   ③ Classification system

 Limited compatibility between National Account and
  Household Income & Expenditure Survey (HIES)
Ⅳ. Household Income & Expenditure Survey

① Coverage by Subjects

• National Accounts : Households + NPISHs
• HIES : Households only!
   – In addition, HIES excludes certain households1)
     1) Farm and Fishery HHs, Communal HHs and HHs
        running restaurant and hotels in their own houses
   – The Coverage Ratio is 90.5%
Ⅳ. Household Income & Expenditure Survey

② Bias inherent in Sampling Method (HIES)
• Non-response rate tends to be high in high-income HHS.
   – On average, non-response rate was 18.9% in 2008
• Under-reporting could happen, especially in :
   – Income : Self-employment income, property income
   – Consumption : Sin item (i.e. tobacco, alcoholic beverages)
• Sampling bias has been reported frequently in many
  comparative studies carried out in many OECD countries.
Ⅳ. Household Income & Expenditure Survey

③ Different Classification Systems

• Classification Systems are different
   – Ex) Withdrawal from income of Quasi-corporations :
      Property Income (National Accounts) vs.
                   Income for Self-Employment (HIES)
 Ⅳ. Household Income & Expenditure Survey

  USE of HIES in Compiling GDP statistics

• Total amount of income/expenditure/savings : Pointless

• Absolute value by item level : Limited

• Desirable to use detailed goods/service-level
  information(mainly increase rate) of HIES
  to estimate National Accounts
Ⅳ. Household Income & Expenditure Survey
 USE of HIES : Income Sector
• HIES mainly as a reference
• Only a few items* are directly applicable
   Household Survey
   Current transfers between households (in current transfer paid)
   National Accounts
   Current transfers between households (in other current transfers)
Ⅳ. Household Income & Expenditure Survey
 USE of HIES : Personal Consumption Sector

• HIES is More useful than Income Sector because :
   – Many items are comparable in concepts or in classification
     system between HIES and Personal Consumption

   – Subdivision of HIES items are most detailed

• Use of item-level absolute value (Benchmark year) :
   – Private tutoring fee, residence related services, household
     services, and etc. (of course, after parameterization)
Ⅳ. Household Income & Expenditure Survey
 USE of HIES : Personal Consumption Sector (cont’d)
• Use of weights information among items :
   – ‘clothing and footwear related services’, ‘furniture,
     furnishings and household equipment and operation related
     services’, and etc.
   – First, Estimate total amount based on ‘the Census of Service
     Industry’ and apply the HIES weights
• Use of increase rate :
   – In most items
   – Retail Control Method : determine total amount based on
     other statistics such as ‘Whole and Retail Trade Survey’

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