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					       Unbalanced Industry Demand and Supply Shifts:
             Implications for Economic Growth
              in Canada and the United States


             Anik Dufour, Jianmin Tang, and Weimin Wang



                         Presentation to
    The 2008 World Congress on National Accounts and Economic
                 Performance Measures for Nations
                         May 12–17, 2008


MEPA/APME
Introduction: motivation



  Real GDP is non-additive

    Y  i y
                                r             r
                              Y      hi y
                                 i
        r          r                          i
                   i     or
                              H      H hi
  A proxy
                              ~r          r
                              Y       hi yi
    ~r
    Y  i yi
            r            or       i
                              H       H hi

                                                  2
MEPA/APME
Introduction: how does an industry influence real
aggregate GDP in the chained-Fisher index?




            –   Real industry output

            –   Industry output prices




                                                    3
MEPA/APME
Introduction: what drive a change in industry output
and price?




            –   Supply shift, and

            –   Demand shift




                                                       4
MEPA/APME
Introduction: supply shifts and demand shifts are often
unbalanced across industries.


            –   Positive supply shifts:
                 • more for the manufacturing
                 • less for some services industries

            –   Positive demand shifts:
                 • More for services
                 • Less for goods




                                                          5
MEPA/APME
Introduction: production resources will be reallocated
under unbalanced industry demand and supply shifts




                                                         6
MEPA/APME
Objective



    • What are the industry contributions to

            –   aggregate GDP growth, or

            –   aggregate labour productivity growth?




                                                        7
MEPA/APME
Real GDP

                         v           i            y     i    mi 
              Vr             i
                                  v
                                          
                              P                 Pv
                                             piy y ir  pim mir            
                                         
                                          i           Pv
                                                                            
                                                                            
                                                                            
                                                  
                                           pi i pi i
                                             ~ y y r  ~ mmr               ,
                                              i

        V , V r and P v as nominal GDP, real GDP and GDP deflator.
        vi be industry nominal value added.
        y i , y ir and p iy are industry nominal gross output, the real gross output, and the
              gross output deflator
        mi , mir and p im are industry nominal intermediate inputs, the real intermediate
              inputs, and the intermediate input deflator
        ~ y and ~ m are the industry real prices of gross output and the intermediate inputs,
        pi          pi
              defined as ~ y  p y /P v and ~ m  p m / P v
                          i  p        i      p         i         i



                                                                                                8
MEPA/APME
Real GDP growth from year z to year t

                                                   ~                                              
                      Vt r  V zr
            Vr
             z t   
                                    1
                                   r                 p    y
                                                          it
                                                                  r
                                                                      py r      
                                                               y it  ~iz y iz  ~it mit  ~iz miz
                                                                                 pm r pm r
                          V zr     Vz               i


                                ~  y                                                          
                         1
                                 p      y
                                        iz
                                              r
                                             it    y iz  ~ity  ~iz y it  y iz  ~ity  ~iz y iz
                                                       r
                                                           p      py r          r
                                                                                    p      py r
                        V zr    i


                        
                         1
                       Vz ir 
                                     
                                 ~ m mr  mr
                                 piz it     iz              ~
                                                               p    m
                                                                   it    ~iz mit  miz  ~it  ~iz miz
                                                                          pm r      r
                                                                                            
                                                                                          pm pm r          
                           ~ y yr  yr  yr
                            p                                  ~ y  ~ y yr  yr ~ y  ~ y 
                                                               pit piz                  p    p
                      iz r iz  it r iz                                  it r iz it ~ y iz 
                       i     V z  y iz
                                  
                                                                  ~y
                                                                  piz          y iz       piz  
                             ~ mmr  mr  mr
                             p                                    ~ m  ~ m mr  mr ~m  ~ m 
                                                                  p       p                p      p
                       iz r iz  it r iz                      it ~ m iz  it r iz it ~ m iz 
                         i    V z  miz
                                                                     piz           miz       piz   
                                                                                                    

                    
                           y iz r
                         V            
                                          p         p           m            
                                 y z t  ~ zyt  y zrt ~ zyt  iz m zrt  ~ zm t  m zrt ~ zm t
                                                                             p       p                    ,
                                                                                                                 
                        i  z                                     Vz                                            

        
        x z t is the growth rate of variable x over the period from z to t

                                                                                                                       9
MEPA/APME
Industry contributions to real GDP growth


         y iz r         miz r   yiz ~ y               miz ~ m 
                                                              
 CPCi  
        V     y z t 
                             m z t   
                                              p z t      p z t 
                                                                     
         z               Vz             Vz             Vz         
          y iz r ~ y         miz r ~ m   
       V    y z t p z t 
                                    m z t p z t  .
                                                  
          z                   Vz                  

  1st term: pure quantity effect
  2nd term: pure price effect
  3rd term: the interaction of the first two effects.


                                                                         10
MEPA/APME
Major desirable properties



   Consistent with real GDP in the chained-Fisher index

   Additive for any long period

   Invariant to base-year




                                                           11
MEPA/APME
Canada: industry contribution to aggregate GDP growth
1981-2000




                                                        12
MEPA/APME
US: industry contribution to aggregate GDP growth
1981-2000




                                                    13
MEPA/APME
Aggregate labour productivity

                   Vr       V         yi  mi 
              Xr       V  i V
                   H P H                 P H
                       piy yir  pim mir       piy hi xiy  pim hi xim 
                                        
                                                                        
                                                                          
                    i       PV H          i             PV H           
                  
                          hi ~ y y ~ m m
                          H
                                                        
                               pi xi  pi xi   li ~iy xiy  ~im xim
                                                    p         p         
                      i                        i

                        
                          ~ y x y  ~m xm ,
                          s   i     s i   i   i   
                      i


        H is total hours worked; X r is labour productivity
        hi is industry hours worked
        xiy and xim are industry real gross output per hour worked and real intermediate
             input per hour worked
        ~ y  ~ y l is industry gross output relative size ( l  h H and ~ y being real
        si    pi i                                                        pi
                                                              i   i
             gross output price)
        ~ m  ~ m l is industry intermediate input relative size ( l  h H and ~ m being
        si     pi i                                                            pi
                                                                    i   i
             real intermediate input price).

                                                                                           14
MEPA/APME
Aggregate labour productivity growth from year z to year t

      
      X zvt   
                 X tv  X zv
                     X zv
                               1
                              v
                              Xz
                                                ~
                                                s    it
                                                        y
                                                                            
                                                            xity  ~izy xiz  ~itm xit  ~izm xiz
                                                                   s y        s m s m               
                                                i


               
                    1
                   X zv
                           ~ x
                          s      iz
                                    y    y
                                        it           
                                              xiz  ~ity  ~izy xity  xiz  ~ity  ~izy xiz
                                                 y
                                                     s      s           y
                                                                              s     
                                                                                     s      y
                                                                                                     
                          i

                  1
                Xz i
                           s                s      
                v  ~izm xit  xiz  ~itm  ~izm xit  xiz  ~itm  ~izm xiz
                                 m      m
                                                      s    m       m
                                                                          
                                                                          s      s   
                                                                                    m
                                                                                                          
                    ~yxy  xy  xy ~y  ~y xy  xy ~y  ~y 
                    siz iz it             sit siz               iz sit    siz
                      v 
                                    iz
                                         ~y           it
                                                                       ~y 
                i    X z  xiz     y
                                              siz            y
                                                           xiz         siz    
                    ~m xm  xm  xm ~m  ~m xm  xm ~m  ~m 
                    siz iz                  s       s                  s      s
                            it m iz  it ~ m iz  it m iz it ~ m iz 
                  i    X zv  xiz
                                               siz           xiz         siz     
                                                                                  
                   y
                             
                  iz x zyt  ~zy t  x zyt ~zy t  iz x zmt  ~zm t  x zmt ~zm t
                                 
                                 s  s              m
                                                                   
                                                                    s  s                                   .
                                                                                                                
                 i  Vz                                Vz                                                      

                                                                                                                      15
MEPA/APME
Industry contributions to
aggregate labour productivity growth

         y iz y          miz m   yiz ~ y          miz ~ m 
                                                            
 CPCi  
        V     x z t 
                            x z t   
                                               s z t    s z t 
                                                                   
         z               Vz              Vz           Vz        
          y iz y ~ y   miz x m ~ m .    
       V     
               x z t s z t         z  t s z t 
                                                   
          z                   Vz                  

  1st term: the pure productivity effect
  2nd term: the relative size effect
  3rd term: the interaction of the first two effects.


                                                                       16
MEPA/APME
Major desirable properties



   Consistent with real GDP in the chained-Fisher index

   Additive for any long period

   Invariant to base-year




                                                           17
MEPA/APME
Relative size by industry in Canada and the U.S.




                                                   18
MEPA/APME
Canada: industry contribution to aggregate
labour productivity growth, 1981-2000




                                             19
MEPA/APME
U.S.: industry contribution to aggregate
labour productivity growth, 1981-2000




                                           20
MEPA/APME
  Conclusions

 1.   This paper provides a decomposition technique to study industry
      contribution to aggregate output and labour productivity growth.
      The technique is consistent with real GDP in the chained-Fisher
      index and has several desirable properties.

 2.   The framework distinguishes the industry contribution from
      changes in the industry output and changes in industry’s output
      price. It shows that over the period 1981-2000, the service sector
      was the major contributor to both real GDP growth and aggregate
      labour productivity growth.

 3.   The estimate of the contribution for the service sector is much
      higher than estimates using traditional methods that focus only on
      the quantity effect. By ignoring the price effect, traditional methods
      underestimate the contributions of service industries with rising real
      output prices to real GDP growth and aggregate labour productivity
      growth.

                                                                               21
MEPA/APME
            22
MEPA/APME

				
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