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The role of supply and use/input output tables in the perspective analysis of economic development of Rwanda with example

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par Jean Baptiste HABYARIMANA
National University of Rwanda - Bachelors degree in Applied Statistics  2010
Dans la categorie: Economie et Finance
  

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NATIONAL UNIVERSITY OF RWANDA

FACULTY OF ECONOMICS AND MANAGEMENT

DEPARTMENT OF APPLIED STATISTICS

ACADEMIC YEAR 2010

THE ROLE OF SUPPLY AND USE/INPUT OUTPUT TABLES IN THE PERSPECTIVE ANALYSIS OF ECONOMIC DEVELOPMENT OF RWANDA WITH EXAMPLE

A dissertation submitted for the partial fulfilment of an award of Bachelor's degree in Applied Statistics by National University of Rwanda.

By

HABYARIMANA Jean Baptiste

Supervisor: Mr. RURANGA Charles

Huye, September 2010

Declaration

I, HABYARIMANA Jean Baptiste, hereby declare that, the work presented in this dissertation entitled «THE ROLE OF SUPPLY AND USE /INPUT OUTPUT TABLES IN THE PERSPECTIVE ANALYSIS OF ECONOMIC DEVELOPMENT OF RWANDA» is my original work and has never been presented elsewhere for any academic award.

All consulted references have been systematically presented in references.

HABYARIMANA Jean Baptiste

Signature: ............................

Date: .................................

Dedication

I dedicate this dissertation to:

God,

Family,

Teachers at all levels,

and

Friends.

Acknowledgement

The success of this research work cannot be solely attributed to the effort of one person. In fact, there must be combined efforts to make such exercise a success. It is therefore on this ground that other people deserve my sincere thanks and gratitude.

I thank in advance the National University of Rwanda and the Government of Rwanda for having formed me and supported this study.

I extend my sincere gratitude to my director RURANGA Charles for his help and active role he played towards the success of this work.

Thanks to my family, relatives and friends for their help either materially or morally, especially to NTAKIRUTIMANA Eric my colleague.

I would like to address my special thanks to anyone who directly or indirectly contributed to the success of my study.

Table of Contents

Declaration i

Dedication ii

Acknowledgement iii

Table of Contents iv

List of Tables and Graphics vi

Tables vi

Figures vi

List of Abbreviations vii

Abstract viii

Chapter I. INTRODUCTION 1

1.1. General introduction 1

1.2. Background to the study 2

1.3. Problem Statement 3

1.4. Research hypotheses 3

1.5. Objectives of the study 4

1.6. Scope of the study 4

1.7. Justification of the study 4

1.8. Limitation of the study 4

Chapter II: LITERATURE REVIEW 5

2.1. National Accounting in Economic Development. 5

2.1.1. Definition and nature of SNA information for economic development 6

2.1.2. Supply and Use Tables (SUT) 7

2.1.3. SUT concept, linear model, and GDP derivation 7

2.1.4. The role of SUT in decision making, projection and planning 8

2.1.5. What SUT can do in developing countries? 9

2.2. Economic Development Concept 9

2.2.1. Introduction 9

2.2.2. Measures related to Economic Development 9

2.2.2.1. Traditional measures of economic development. 9

2.2.2.2. Human Development Index 10

2.2.2.3. Poverty Weighted Index 10

2.2.2.4. Headcount Index 10

2.2.2.5. Human Poverty Index 11

2.2.3. Sustainable development and environment accounting 11

2.2.4. Three objectives of development 11

2.3. From SUT to economic development 11

2.3.1. System of Economic and Social Accounting Matrix and Extension (SESAME) 12

2.3.2. Supply and Use table as a SAM building-block 13

2.3.3. SUT model that would help in promoting economic development progress of Rwanda 13

Chapter III: METHODOLOGICAL APPROACH TO THE STUDY 14

3.1. Methodology 14

3.2. Sources of data 14

3.3. Conceptual framework of the study 15

3.4. Model designing for the purpose of analysis 16

3.3.1. Tables Analysis 16

3.3.2. SUT linear model Analysis 16

3.3.3. Human Development Index Analysis 16

Chapter IV: DATA PRESANTION, ANALYSIS, AND INTERPRETATION 17

4.1. The role of information from SU/ I-O Tables in Economic Development 17

4.2. Relevance of input-output analysis to policy 19

4.3. System of National Accounts of Rwanda 20

4.4. The role of Supply and Use Tables/Input-output Table in the perspective analysis of economic development 21

4.4.1. Estimating the quality of life with input-output table 21

4.4.1.1. The Linkage Technique 21

4.4.1.2. The Activity Specification Technique 21

4.4.1.3. The Dummy Sector Technique 22

4.4.1.4. Applying Techniques to Specific Quality Indicators 23

4.4.1.4.1. Linkage application 23

4.4.1.4.2. Dummy technique application 24

4.5. The role of Supply and Use tables/Input-Output Table in economic analysis and prevision, decision taking, and policy making for a sustained economic development 26

4.5.1. Quality of life, poverty and economic inequality 27

4.5.2. GDP and economic well-being 27

4.5.3. Environment quality and resource depletion 29

4.5.4. Tourism 30

4.5.5. Human Development Index Analysis 30

4.6. Challenges in information provided by Linear Model 32

4.6.1. Use of central equation system for input-output analysis 35

4.6.2. Use of output function to measure the impact of increasing or decreasing intensity of Input Coefficients 36

Chapter V: CONCLUSION AND RECOMMENDATIONS 39

5.1. Conclusion 39

5.2. Recommendations 42

REFFERENCES 44

List of Tables and Graphics

Tables

Table 4.1. A Simplified Supply and Use Framework 17

Table 4.2. A Simplified Symmetric Input-Output Table (Product by Product) 18

Table 4.3. Environmental Indicators 30

Table 4.4. Estimated Simplified Supply and Use Framework in Billion Frw (in Constant 2006 Prices) 33

Table4. 5. Estimated Simplified Symmetric input-output table (product by product) in Billion Frw (Constant Price) 34

Table4.6 Input Coefficients 34

Table 4.7. Changes in Input Coefficients 37

Table 4.8. Used Abbreviations 38

Figures

Figure 2.1. National Accounting and Policy Analysis ............................................................5

Figure 2.1. Conceptual Framework.................................................................15

Figure4.1. Disaggregation of Household Categories...............................................................5

Figure 4.2. Human Development Index Trend (1980-2005) 31

Figure 4. 3. Evolution of Human Development Index 32

Figure 4.4. Change in Production due to Changes in Input Coefficients (2007 Basic Years) 37

Figure 1. Appendices: From Supply and Use tables to Input-Output Tables..........................i

List of Abbreviations

?inv: Changes in Inventory,

AGE: Applied General Equilibrium () model

CM: Commercial Margins

CPC: Central Product Classification

EDPRS: Economic Development and Poverty Reduction Strategy

EX: Exports

FC: Final Consumption,

FCFG: Fixed Capital Formation Gross,

GDP: Gross Domestic Product

GFCF: Gross Fixed Capital formation

GNI: Gross National Income

HDI: Human Development Index

HS: Harmonized System

IC: Intermediate Consumption,

IEA: Integrated Economic Account

IPAR: Institute of Policy Analysis and Research - Rwanda

ISIC: International Standard Industrial Classification

ISNA: International System of National Accounts

M: Imports

MDGs: Millennium Development Goals

NAMEA: National Accounting Matrix include Environmental Accounts

NISR: National Institute of Statistics of Rwanda

NUR: National University of Rwanda

P: Production

P RSP: Poverty Reduction Strategic Paper

SAM: Social Accounting matrix

SNA: System of National Account

SP: Subvention on Products,

SUT/ I-O: Supply and Use Tables/ Input- Output Table

T: Transport Margins

TP: Tax on Products

UNDP: United Nation Development Program

Abstract

In this study, the objective was to show the role of supply and use tables/Input-Output table in economic development of Rwanda in order to build a coherent model that can be useful for Rwanda's National Accountants in analyzing possible effects of alternative economic policies over different segments of the society. As necessary and reliable statistics are difficult to obtain for compiling a Social Accounting Matrix for Rwanda, this work has limited to the analysis of SUT, I-O tables, and Satellite Accounts and economic development of Rwanda.

Assuming that the Input-Output Coefficients as derived from Input-Output Table remain more or less constant for a certain period of time (say a couple of years), they may in a meaningful way be used in so called Input-Output Models or Inter-Sectoral Models, which describe the relationship between the output of various branches on the one hand and their different input requirements on the other hand. Such kind of models may play a role in different types of analysis related to policy preparation and planning in Rwanda as shown in this research, and Input-Out put approach would be a powerful too in analyzing and planning process of economic development and industrial growth in Rwanda.

A consistent and comprehensive usefulness of SUT/IO-T in Economic Development was reached due to the analysis of Central Equation System for Input-Output Analysis «Z = B*(I-A)-1 and Output Function X = B* * (I-A)-1y. Furthermore the objective of this study was to construct relationship between SUT and Economic Development which can be employed by modellers in construction of relevant models for Rwanda's economy.

This study showed that much analyses of economic development of Rwanda need to be based on economy wide basis (e.g. development planning) and this suggests the need of macro-economic approach. Most macro-models however are so highly aggregated so that they can perforce assumed degree of resource mobility which is just not present in Rwanda. The appropriate answer in the Perspective Analysis of Economic development of Rwanda seems to be SUT/Input-Output analysis, which is macro in terms of its coverage and get «micro» in terms of its approach.

Chapter I. INTRODUCTION

1.1. General introduction

The simplest possible economy cannot exist without producing and consuming, so clearly we need account for these two fundamental activities, even a very primitive economy, however, needs to set aside some of its current production for the activity of accumulation. And we must recognize the fact that virtually no economy can supply all its needs from its own resources, so we need another account for the activity of foreign trade (V. Bulmer-Thomas, 1982: 2).

At present, the starting point of National Accounts compilation is often the estimation of an Input-Output Tables or Supply and Use tables (SUT). Those tables provide an excellent framework for combining the so-called production approach and expenditure approach to the computation of Gross Domestic Product (GDP). However, only cursory attention can be paid to the third approach, the income approach. Expanding such tables in Social Accounting Matrix (SAM) remedies this short coming of income of various Institutional Sectors, and by providing a check on these income data through a comparison with detailed expenditure figures for the same sectors (Steven, 1996: 146).

Again, every individual, each society and every country strives for establishing a self sustained economic development, and Rwanda does not make exception to this rule. For a sustained economic development , a System of Economic and Social Accounting Matrix and Extension (SESAME) and a National Accounting Matrix include Environmental Accounts (NAMEA) are needed and are largely dependent on reliable information necessary to depict the past and the present economic situation, so that future efforts can be assessed. The supply and use tables (SUT) information, thus, is a key factor decision making in such effort.

Thus, each country needs adequate information in its efforts of providing welfare of their members. This idea has been emphasized by Welsch & Short (1987:5), when they mentioned, «The dynamic and successful society depends on the ability of each organization to measure and report its accomplishments, to undergo critical self analysis, and, through sound decision, to renew itself and grow. In this way, individual and social objectives are sewed best».

For its economic development, Rwanda needs such information system that helps in providing reliable information upon which economic activities and economic decisions can be taken. This information system is nothing other than information from SUT/I-O Table, SAM, NAMEA and SASEME within the System of National Accounts.

1.2. Background to the study

The presentation of economic activities in accounts was first established by William Petty (1676) and Gregory King (1696). François Quesnay (1758) published a table of total economy based on economic activities. Therefore, the term supply and use table is not new. The first Supply and Use Tables known as Input-Output Presentation or Leontief's Model was invented by Wassili Leontief. This presentation became very useful in determining the inter-industrial exchanges, and has been adopted in System of National Accounts to view economic performance and prevision (Jean-Paul PIROU, 2006: 5).

On the other hand, the roots of SAM go back to the pioneering work in social accounting by Gregory King in 1681.However modern social accounting include SASEME and NAMEA which are largely inspired by the work of Stone in connection with the Cambridge growth model in the 1950s and 60s and Drud, Grain, and Pyatt (1983, 1986) studied how SAM can be usefully developed in the development and understanding of model structures and results (Grahan Pyatt, 1988: 327).

In 1953, United Nation Organization created an International System of National Accounts (ISNA), which was revised in 1968, and European Community created the European System Accounts in 1969.

In 1993, for the purposes of economic evolution and economic information the ISNA was revised, and became System of National Accounts (SNA93). In 1993 the System of National accounts has been defined with two main identities which identify the efficiency of circular flow of income and expenditure in economy (W. Tongeren, Bertha V., 2007: 4-24):

Supply of Goods and Services = Use of Good and Services

P+M+CM+TM+TP-SP = IC+ FC + FCFG + ?inv + EX

Today those two identities are mainly used to understand the economy of a country during the whole year, and reports on Input-Output Tables show that Developed Countries have achieved their development through the use of it.

1.3. Problem Statement

For the last decades, SNA principles, procedures, and practices have not been well defined and applied in Rwanda ,and SUT has been largely viewed only as being GDP tool oriented, in addition, the lack of professional macro-accountants and sufficient information constrains Rwandan Institution Sectors (Non financial corporations, Financial corporations, General government, Household, Non-profit institutions serving households and Rest of the world) to introduce and use macro-accounting information, and to compile Input-output Tables in the process of economic development. However the role of SUT and I-O Table in this process has not been considered with attention, also no formal system of accounting, practices and principles were adopted to Rwandan situation to help disclose information used in this process. Furthermore, comprehensive literatures in the field of National Accounting and Economic Development are few and poor in Rwanda. Still there is a remarkable problem of recognition of SUT/ I-O Table and their utilization in the process of Economic Development in Rwanda.

This implies to ask the following questions:

1. Is it possible that development of SUT/I-O Table exerts an influence on economic development? If yes, how a country like Rwanda can have an access to this development?

2. Is it necessary to develop SUT/I-O Table in order to attain economic development? And what are the functions of SUT/I-O Tables in the perspective analysis of economic development?

1.4. Research hypotheses


This study lies on the following hypotheses:

1. The development of Supply and Use Tables/Input-output Table has a significant role in the perspective analysis of economic development of Rwanda.   

2. Supply and Use tables/Input-Output Table have significant role in economic analysis and prevision, decision taking, and policy making for a sustained economic development of Rwanda.

1.5. Objectives of the study

Specifically, the objectives of this study are:

1. To identify an extended statistical information system for monitoring and analyzing the interaction between SUT/I-O Tables and Economic Development in social changes ;

2. To determine the new insight into economic and social dynamic provided by a comparative analysis of SUT/I-O Table and other different Satellite Accounts.

3. To identify an empirical presentation of previous themes in economic development in the case of Rwanda.

1.6. Scope of the study

The scope of the study is limited to the Supply and Use Table/Input-Output Table in relationship with economic development of Rwanda. The study focuses on the use of national accounts data as cyclical indicators and indicators ratios that are used to the maximum extent to analyze not only the past but also how trends observed in the past can have consequences for the future while attempting to project economic development.

1.7. Justification of the study

As far as Rwanda is concerned, our references are based only on the structure of SUT/I-O Table of SNA, and Satellite Accounts and Sustained Economic Development and a specific emphasis was drown on improvement of SNA structures procedures and methods that fit the needs, aims, economic structure and skills of a developing country like Rwanda. And in addition, the identification of the role of SUT in Economic Development through SNA will help other researchers and somewhat, Rwandan researchers in National Accounting will be awoken.

1.8. Limitation of the study

During this study, it was proved that data in System of National Accounting of Rwanda are limited to a few number of indicators, and available data are aggregated indicators therefore it was not easy to find major data and information to estimate STU and IO-T for Rwanda, consequently some assumptions were adopted in order to estimate hypothetical tables (SUT and IO-T) and to view their perspective role in the analysis of Economic Development of Rwanda.

Chapter II: LITERATURE REVIEW

2.1. National Accounting in Economic Development.

National accounts and cyclical indicators development for past, present and future economic development are based mainly on the data containing in the economic core of the 1993 SNA, which deal with analysis of production, income, and saving. It includes aggregates SUT data and also Integrated Economic Account (IEA) data for the mains sectors of the SNA covering the production, income, and use of income and capital accounts.

The indicators analysis focuses, however on assessing development in the past, and SNA model within SUT extends this analysis, by using relation between development and corresponding data in the past as a means of projecting the development and data to the future, in this, for socio-economic indicators ,indicators ratios are used as basis for projecting past development to the future.

Figure 2.3. National Accounting and Policy Analysis

Projection of future development

Selection and compilation of indicators measuring past trends

Macro-account design and compilation

Statistics and statistical development

Policy analysis formulation

c

b

a

d

f

c

g

h

Source: UNITED NATION; 2002; Use of Macro-accounts in policy analysis; pp 63-64

The above diagram shows how indicators and macro-accounts could play a central role in statistical development and policy formulation .The arrows in diagram represent the interaction between the deferent elements. Thus, policy formulation could be based on the use of indicators measuring past and present trends [a], and may also take into account future developments that are based on alternative values of indicators in the future [b]. The use of indicators in projection is reflected in direct link with the indicators measuring past trends [c].

In order to define statistical development that would support policy formulation, links are needed to translate policy formulation into indicators [d], indicators into the design and compilation of macro-accounts [e] and macro-accounts into statistical development [f]; the derivation of values of indicators are represented by reverse links between statistics and the compilation of Marco-accounts [g], and between the macro-accounts data and the derivation of indicators values [h]. The diagram shows also the three uses of indicators in Assessment [a], Compilation [g], and projection [c] interact with one another.

2.1.1. Definition and nature of SNA information for economic development

The SNA is a comprehensive, consistent and flexible set of macroeconomic accounts intended to meet the needs of government and private sectors analyst, policymakers and decision takers(KAREN Wilson 2004: 1-24).

The SNA provides information not only about economic activities, but also about the levels of an economy's productive asset and the wealth of its inhabitants at particular point of time and also includes links between national economy and the rest of the world (KAREN Wilson 2004: 1-24).

This information is drawn in a comprehensive accounting framework within which economic data can be compiled and presented in a format that is designed for purposes of economic analysis. In practice the accounts are compiled for succession of time periods, thus providing a continuing flow of information that is indispensable for monitoring, analysis, and evaluation of the performance of an economy over time (KAREN Wilson 2004: 1-24).

National accounts are estimated by economic activities which are classified according to the International Standard Industrial Classification (ISIC) of all activities and this is used alongside the United National Central Product Classification (CPC) that is linked to the Harmonized System (HS) used for classifying international trade

All these, are adopted to Rwanda`s development level keeping their framework as much as possible (KAREN Wilson 2004: 1-24).

2.1.2. Supply and Use Tables (SUT)

The SNA93 recommended that national accounts estimates should be compiled in a supply and use framework. Such framework enables estimates of supply to be confronted with the estimates of use. The SUT serves for statistical and analytical purposes.

They provide a framework for checking the consistency of statistics on flows of goods and services obtained from quite different kinds of statistical sources, industrial survey, household expenditure inquiries, investment surveys, foreign trade statistics and other statistics compiled in so called Input-Output Table (KAREN Wilson, 2004: 2).

2.1.3. SUT concept, linear model, and GDP derivation

The SUT proper, include two matrices, that are, an Output matrix and an Intermediate consumption or Input matrix (O-I) (Hand book of NA, 2002: 65). These two matrix derived directly from differences in detail and structure of ISIC and CPC and also from the definition of establishment unit used in classifying industries, as defined in SNA may be linearly modelled for being merely used in different flied (mathematics, economics, statistics etc)

SUPPLY=USE

P+M+CM+TM+TP-SP = IC + FC + FCFG + ?inv + EX

Because trade and transport margins may be used to estimate value of output of the trade industry, the identity becomes;

P+M+TP-SP = IC+FC+FCFG+?inv + EX

CM and TM disappear because P now represents the value of the production of all branches included trade and transport.

Because, a part of resources was absorbed as intermediate consumption, and for the efficacy of this identity we have to subtract IC from each part.

P-IC+M+TP-SP = IC- IC + FC + FCFG + ?inv + EX

And is known that;

P-IC = Value Added (VA)

Therefore;

VA+M+TP-SP =FC+FCFG+?inv + EX

The VA is measured on basic price because it is for P .The summation of VA with TP nets of SP implies that VA at acquisition price equal to Gross Domestic Product (GDP).

GDP+M = FC + FCFG + ?inv + EX

For the international trade indicator purposes analysis the identity becomes;

GDP = FC +FCFG + ?inv + EX-M

This final identity is very synthetic identity which describes operations of goods and services of an economy.

GDP is an important indicator for economic development ,first is used in (GDP per capital ,Gross National Income (GNI), Gross National Disposable Income (GNDI) , GDP Deflator (an index for average price level of an economy's production related to a base year , etc...).Second ,is very used in combination with other socio-economic indicators to identify economic development and economic development projection (Human Development Index , Headcount Index , Human Poverty Index , Poverty Weighted Index , etc...). But does not provide consolidated indicators to perform further analysis like SUT and IO-T.

2.1.4. The role of SUT in decision making, projection and planning

In order to make SUT information useful, it is better to learn how to present the right information in the right way at the right time. SUT is expected to have this quality. Therefore the objectivity of decision making depends on how in selecting at least one of the alternative actions the degree of uncertainty surrounding this decision is reduced, and the outcome of this decision is improved.

While the tradition application of SUT was to provide historical growth or declines of GDP of an economy, today the trends have been moving toward emphasizing the economic decision making function because of the utilization of SUT data for planning and projecting future economic activities in so-called Social Accounting Matrix (Brody A. & Carter A.P., 1971: 44-60).

2.1.5. What SUT can do in developing countries?

SUT have over years, been serving the economic systems that have became increasingly complex. In these complex economic systems, SUT plays a significant role in providing reliable information upon which economic activities and decision can be taken of. Again SUT permit policy makers to design practical development planning from which productive investment is attained .This enables the passage from stagnation to intensive development. A long this process of intensive development, SUT information can lead to decision not only about production but also the efficient utilization of scarce resources of the society (Bulmer-Thomas V., 1982: 256-278)

As most of developing countries suffer from a lack of information for stating the annual GDP, for computing other different indicators, SUT may fill this gap as a synthetic and very easy model to use for planning, programming, budgeting and financing economic development activities. This research proposes that, this highlight function of SUT could also be applicable to Rwanda. So why, this study will pay attention on its role as an answer to economic development of Rwanda (Bulmer-Thomas V., 1982: 256-278).

2.2. Economic Development Concept

2.2.1. Introduction

The economic development is one of the oldest concept, most exciting, and most challenging branches of the broader fields of economics and political economy. Although one could claim that Adam Smith was the first «development economist» and that his Wealth of Nations, published in 1776, was the first treatise on Economic Development.

2.2.2. Measures related to Economic Development

2.2.2.1. Traditional measures of economic development.

In strictly economic terms, development has traditionally meant the capacity of a national economy, whose initial economic condition has been more or less static for a long time, to generate and sustain an annual increase in its national income at rate of 5% to 7% or more (Todaro & Smith 2006).

The World Bank use per capita income to view development of countries (Low Income Countries are those having a per capital gross national income in 2003 of $765 or less, Rwanda falls in this group with $300 per capita income; Lower Middle Income countries have income between $766 and $3,035; Upper Middle Income countries have income between $3.036 and $9,385; and High Income Countries have a per capita income of $9,386 or more) (Todaro & Smith 2006).

2.2.2.2. Human Development Index

The most ambitious attempt to analyze the comparative status of socio-economic development has been undertaken by the United Nation Development Program (UNDP) in its annual report `Human Development Reports' in 1990 with Human Development Index which attempts to rank all countries in scale of 0(lowest Human Development) to 1(highest Human Development) based on three goals or ends products of development (Todaro & Smith 2006):

o Longevity; as measured by life expectancy at birth.

o Knowledge as measured by a weighted average of adult literacy (2/3) and mean year of schooling (1/3).

o Standard of living as measured by real per capita income. Therefore;

HDI = 1/3(income index) +1/3(life expectancy index) +1/3(education index)

2.2.2.3. Poverty Weighted Index

Is a welfare index in which income gains for lower income groups are given greater weighted than gains for upper income groups (Todaro & Smith 2006;824).

2.2.2.4. Headcount Index

This index measures the proportion of a country's population below the poverty line.

Absolute poverty may be measured by the number or «head-count H» of those whose incomes fall below the absolute poverty line «Y», when the head count is taken as a fraction of the total population «N» we define the headcount index as H/N ( Todaro & Smith 2006;815)

2.2.2.5. Human Poverty Index

Is an index measuring deprivation in basic human development in a country? Variables used are percentage of people expected to die before age 40, adult literacy rate, percentage of people without access to health services and safe water, and percentage of under weighted children 5 years of age ( Todaro & Smith 2006).

2.2.3. Sustainable development and environment accounting

Environmentalists use the term sustainability to characterize the desired balance between economic growth and environment preservation. Sustainability generally refers «meeting the needs of the present generation without compromising the needs of the future generation»(Todaro & Smith 2006; 471).Therefore, it is important that development policy maker incorporate some form of environmental accounting into their decision. Thus policy maker may set a goal of no net loss of environmental assets

2.2.4. Three objectives of development

Through some combination of social, economic, and institutional processes, a society secures the means for obtaining a better life. Whatever the specific components of this better life, development in all societies must have at least the following three objectives (Todaro & Smith 2006; 22);

o To increase the availability and widen the distribution of basic life-sustaining.

o To increase the level of living (income, jobs, education, culture and values).

o To expend the range of economic and social choices available to individuals and nations by freeing them from servitude and dependence.

2.3. From SUT to economic development

Economic activities have strong impact on the environment, and vice-versa. However until recently, environmentally related data have been given little attention in National accounting system .As Bartelmus at al. (1993) pointed out, the SNA fails; consider (a) new scarcities of natural resources that could threaten the sustained production of the economy and (b) the degradation of environmental quality caused mainly by pollution and its effects on human health and welfare.

To overcome these short coming ,the United Nations begin to revise the SNA in 1993.The revised version contains special satellite accounts for the environment as supplement to the central system (United Nations 1993 a.b).In addition to the UN's effort in revising the SNA , a few other studies on integrating environmental accounts with economic accounts have been seen in the literature .For the SAM in particular, studies on incorporating pollution emission and environmental impacts in a SAM framework emerged recently.

Keuning (1993) proposed a extended SAM called the National Accounting Matrix including Environment Accounts (NAMEA) .The NAMEA integrates economic accounts with accounts for pollutants and environmental impacts. In the NAMEA economic flows in monetary terms and pollution effects in physical terms are combined into a single information framework .Pollution emissions from production, consumption, storage, imports and exports (SUT's variables) are presented in emission account and further allocated into a set of environmental themes (Keuning 1998: 438-439).

2.3.1. System of Economic and Social Accounting Matrix and Extension (SESAME)

SESAME is statistical information in matrix format from which a set of core economic, environmental and social macro-indicators is derived (Steven 1996; 2). SESAMEs macro-indicators can be seen as tips of a big iceberg. The general public, the media and busy policy makers are and will be satisfied with a picture in which only these tips emerge.

In this, SESAME serves as a useful extension of present day national accounts, in two aspects. First, the SAM «a Social Accounting Matrix (SAM) is a matrix presentation of a sequence of monetary accounts that each shows a certain economic process and its relation to other economic process (Steven 1996; 9)»- part of a SESAME improves the compilation of national accounts because it integrates more basic sources at meso-level. Secondly SESAME is apt to integrate all kinds of social and environmental statistics (Steven 1996; 145).

2.3.2. Supply and Use table as a SAM building-block

In analogy with the inverse of Input-Output Table or Supply and Use Table, the inverse of endogenous part of a SAM provides a framework for a single, linear model .However a SAM-based inverse enables a more complete analysis of employment multipliers, of exogenous changes in government expenditure and foreign trade (Steven 1996; 151).

Therefore from, a simple, linear model SAM is embedded into a so-called Applied General Equilibrium (AGE) model. These economic-wide models take account of price-quantity interrelation. They apply micro-economic insight and income distribution of a range of policies, from trade liberalization measures to tax rate changes and structural adjustment packages.

2.3.3. SUT model that would help in promoting economic development progress of Rwanda

SUT is used as a simplified description that captures the essential elements of an economy and allows analyzing them in a logical way. Professionals' National accountants depend on economic data. To understand economic development and to be able to give useful advice to policymakers macro-accounts simply must have up-to-date and accurate data.

In the broadest form, SUT development encompasses the development of SUT standards, SUT procedures and practices, development of SUT legislation, development of SUT professionals and the development of SUT code of ethics that govern the SUT professionals.

This development has an important influence on the preparation of accounting information needed by different Policymakers and Decision takers to enhance economic development within individual entities (micro-level) and within aggregate entities (macro-level) and more further political leaders and policymakers also need economic data to help them in their decision and planning.

Chapter III: METHODOLOGICAL APPROACH TO THE STUDY

It is primary intended to make a description and an analysis study of the role of SUT/I-O Table in the perspective analysis of economic development of Rwanda .For this reason, it bears an exploratory aspect, especially because there has not been a similar study before. The exploratory aspect of this study is understood in the context of a description that was made in order to study the application and applicability of SUT/I-O Table in the process of economic development of Rwanda. This description was adopted because without it, it cannot be possible to make an analysis of the role of SUT in Economic Development. Then, the analysis helps the researcher to couple the results found regarding the use of SUT information with the need to implement an SNA framework that facilitates a sustained economic development process.

3.1. Methodology

The methodology comprises an intellectual process, an orderly system of arrangement that enables one to reach the aspects of knowledge. It is a conceptual process that coordinates a set of investigation operations and techniques. Contemporary English Dictionary (1995; 927) defines methodology as a set of methods and principles that are used when studying subject or doing a particular kind of work.

3.2. Sources of data

To reach the objectives of this research, secondary source of information were used because most required information concerning economic development is mainly of two categories (Quarterly records and/or annually records) and due to the constraint of time, Cost, non availability of GDP by Income Appraoch I was not be able to collect my own data.

In order to collect, organize, and tabulate data a simple form of tables were used. These tables contain Gross Domestic Product by kind of activity from 1999 to 2009 at current, constant 2006 prices and the GDP deflators 2006 base year.

Further more, I gathered also data related to the usefulness of SUT in economic development and the focus was made on the use of SUT/I-O Table in decision making and policies making.

3.3. Conceptual framework of the study

Figure 4.1. Conceptual Framework

SUPPLY

· Domestic Output

· Import

ESTIMATING THE QUALITY OF LIFE

· Linkage Technique

· Specification Technique

· Dummy Technique

INPUT-OUTPUT

· Symmetric Input-Output table

MEASURING ECONOMIC DEVELOPMENT

· Gross Domestic per Capita Growth

· Human Development Index

RICH MEASURE OF WELFARE

· Human Development Index

ESTMATING SOCIAL WELFARE

· Gross Domestic Product

· Gross Domestic Product per Capita

· Literacy

· Life Expectancy

=

Human Development Index is a rich measure of Welfare due to the following reasons:

· The HDI measure a country's average achievement in basic Human Capabilities, indicating whether its citizens lead long and healthy lives, are indicated and knowledgeable and enjoy a decent standard of living.

· Human Development Index is positively correlated with GDP per Capita.

Gross Domestic Product is a poor measure of Welfare due to the following reasons:

· GDP increases when some undesirable events occur, GDP is recorded without netting out the induced environmental impoverishment, and GDP ignores important dimensions of well-being other than monetary income, such as life expectancy and literacy (Nicolas C., Vincent K. & Bruno T. 2005, pp 46-50).

USE

· Intermediate Consumption

· Final Consumption

· Gross Capital formation

· Export

Sources: Brody A. & Carter A.P., 1971, Input-Output Techniques, Geneva. PP 44-60

Nicolas C,Vincent K, Bruno T, 2005, Economic Forecasting, London, United Kingdom PP 46-50

Bulmer-Thomas V., 1982, Input-Output Analysis in Developing Countries, London PP 256-278

3.4. Model designing for the purpose of analysis

3.3.1. Tables Analysis

Through this study Supply and Use Tables and Input-Output Table were analyzed in order to highlight their role in Economic development. From a general view and the usefulness of those tables in Developed and some Developing Countries, the focus was made on how those tables can be important in Economic Development of Rwanda.

3.3.2. SUT linear model Analysis

Due to technical reasons that include huge informal and non-monetary (about 65% of the economy in 2006) and data availability among others, in Rwanda, National accounts are only compiled using the out-put/ production approach. On other hand as far as the expenditure approach is concerned, it is only the final household expenditure that can not be measured on yearly basis.

Along this study SUT linear model was developed in order to perform the above Analyses. This SUT linear Model was analyzed under Supply and Use Identity using two possible derivable Linear Models in Rwanda.

3.3.3. Human Development Index Analysis

This analysis show trend of HDI from 1980 to 2010. The HDI depends on Gross National Income per capita, literacy, and life expectancy.

To the link of Supply and Use Tables, GNI per capita is the fruit of SUT (GNI=GDP- Transfers), literacy and life expectancy are also influenced by the GDP. The analysis of HDI will lead to the general conclusion, because this indicator is a composite indicator includes population impact.

A link from National accounts to satellite accounts was made using System of National Health Accounts where life expectancy was taken into account, Education satellite Account where Literacy level was taken into account and Environment Satellite Account where Tourism and Environment pollution was taken into account. This analysis used also indicators ranging in the period of 1980 to 2009, such as Gini coefficient, Human poverty index, Population in Good Hygienic Conditions and, Urban Population.

Chapter IV: DATA PRESANTION, ANALYSIS, AND INTERPRETATION

4.1. The role of information from SU/ I-O Tables in Economic Development

Supply and Use Framework is the part of National Accounts System which focuses on the production in an economy. It reflects the production of Industries in which Intermediate products and primary inputs (labor, capital, and land) are required. Supply and Use tables show where goods and services are produced and where they are used as intermediate consumptions, final consumption, gross capital formation and export. Supply and Use Framework provides the most important macroeconomic aggregates such as GDP, Value Added, Consumption, Investment, Import and export. Supply and Use System is also an adequate accounting framework for compiling consistent and reliable national accounts data. Consequently, it is recommended that the compilation of national accounts data both in current prices as well as in constant prices should be based on a Supply and Use Framework (Eurostat, 2008: 17-23).

Table 4.1. A Simplified Supply and Use Framework

 

Products

Industries

Final Uses

Total

Agricult.Products

Industrial Products

Services

Agri-culture

Industry

Service Activities

Final Con- sumption

Gross Capital Formation

Exports

Products

Agricult. products

 

Intermediate Consumption by Product and by Industry

Final Uses by Product and By Category

Total Use

Industrial products

services

Industries

Agriculture

Output Of Industries by Product

 

 

Tot. Output

Industry

Service Activities

Value Added

 

Value Added

 

Tot VA

Imports

Total Imports By Product

 

 

Tot M

Total

Total Supply by Product

Total Output by Industry

Total Final Uses by Category

 

Not Applicable

 Source: Eurostat, 2008, Eurostat Manual of Supply, Use and Input-Output Tables, Methodological and Working Paper: 4-23

Supply and Use Framework can be an important tool for Rwanda as a Developing country which want to redress its Economy towards Development, because it offer main information for economic planning as they are stated in the above table.

Supply and use tables serve not only statistical but also analytical purposes, especially when Supply and Use table are transformed into Symmetric Input-Output Tables. Compiling input-output tables is an analytical step. The format of symmetric input-output tables can either be made on the basis of an industry by industry or product by product classification, but the following tables describes Product by Product Symmetric input-output table:

Table 4.2. A Simplified Symmetric Input-Output Table (Product by Product)

Products

Products

Final Uses

Total

Agricult. Products

Industrial Products

Services

Final Con- sumption

Gross Capital Formation

Exports

Agricult. products

Intermediate Consumption by Product and by Industry

Final Uses by Product and By Category

Total Use

Industrial products

services

Value Added

Value Added by Component

 

 

Import

Total Imports by Product

 

Supply

Total Supply

Total final use By Category

 Source: Eurostat, 2008, Eurostat Manual of Supply, Use and Input-Output Tables, Methodological and Working Paper: 4-23.

Input-Output analysis can be used to evaluate the impact of different policies on macroeconomic variables such as gross domestic product, employment, consumption, productivity, competitiveness, Unemployment, Inflation, etc, as well as on the environment.

Moreover, input-output techniques allow quantitative impact assessment of policy actions either for regional, national or international levels. With that purpose, the National Institute of Statistics of Rwanda should develop input-output based models as a tool to support the development of Rwandan policies towards the Economic development. The latest progress on the economic recovering in Rwanda shows that Rwanda need integrated data to plan for its Economic development, and the development of Supply and Use tables/Input-Output Table can play a significant role in economic analysis and prevision, decision taking, and policy making for a sustained economic development of Rwanda.

4.2. Relevance of input-output analysis to policy

System of Input-Output Tables is a powerful analytical tool for policy analysis. Mainly through the product-by-product input-output table, technical coefficients are defined in terms of A = (aij)i,j = 1,...,n (where n is the number of products) and represent the direct requirements of product i needed to produce a physical unit of product j in monetary units. This matrix is calculated by dividing each entry of the IO table by the corresponding column total (output) (José M. Rueda-Cantuche et al., 2005: 8; Eurostat, 2002: 17-23).

Appropriate extensions of the input-output system allow evaluating both direct and indirect impacts of economic policies on other economic variables such as labor, capital, energy uses, emissions and resources use. Moreover, most of these policy issues have to be analyzed along with macroeconomic models providing a minimum of industrial break down (Eurostat, 2002: 17-23).

The so-called central equation system for input-output analysis offers multiple approaches for analysis. Mathematically, this equation is defined as Z = B(I-A)-1F, where B is a matrix of input coefficients for a specific variable (intermediate uses, labor, capital, energy, emissions, etc.), (I-A)-1 stands for the Leontief inverse, F represents a diagonal matrix for final demand and Z a matrix with results for direct and indirect requirements (intermediates, labor, capital, energy, emissions, etc.). Basically, this approach would provide quantitative assessment of e.g. total primary energy requirements or total carbon dioxide emissions for the manufacturing of a vehicle in all the stages of production. Labor and capital content of

Products may also be computed (Eurostat, 2002: 17-23).

Particularly on sustainable production and consumption issues, input-output analysis is crucial for policy assessment. Several prospective studies of environmental policies can be envisaged using this tool, i.e. economy-wide implications of technical change in products or processes (including emission reduction), economy-wide implications of changes in life style and consumption patterns and economy-wide effects of taxation and of internalizing external costs. Furthermore, ex-post analysis of the effectiveness of environmental policies might be addressed either monitoring eco-efficiency over time (environmental impacts per unit of value added) (Rueda-Cantuche, J.M., 2007: 2-21).

4.3. System of National Accounts of Rwanda

Due to technical reasons that include huge informal and non-monetary sectors (about 65% of the economy in 2006) and data availability among others, in Rwanda National Accounts are only compiled using the Output/Production approach.  On the other hand as far as the expenditure approach is concerned, it is only the final household expenditure that cannot be measured on a yearly basis. Hence in this case it can then be calculated by subtracting as a balancing item from the output approach (Republic of Rwanda, NISR, 2010: 1-11).

Therefore finally GDP estimates of both the production and expenditure approaches are computed annually in Rwanda. National Accounts are estimated by economic activities which are classified according the International Standard Industrial Classification of all economic activities (ISIC). This is used alongside the United Nations Central Product Classification (CPC) that is linked to the Harmonized System (HS) used for classifying international trade (Republic of Rwanda, NISR, 2010: 1-11).

All these, are adapted to Rwanda's development level keeping their framework as much as possible. The Industries include: A.Agriculturea.- Food cropb.- Export cropc.- Livestockd.- Forestrye.- FisheriesB.- Industrya.- Mining and quarryingb.- Manufacturingc.- Electricity, gas and waterd.- ConstructionC.- Servicesa.- Whole sale and retail tradeb.- Hotels and restaurants. Transport, storage and communicationd.- Finance, insurancee.- Real estate, business servicesf.- Public administrationg.      Educationh.- Healthi.- Other personal services (trade unions, religious activities, sporting, hair dressing, domestic services, visiting national parks etc) (Republic of Rwanda, NISR, 2010: 1-11).

In Rwanda, national accounts are estimated on an annual basis by the National Institute of Statistics of Rwanda and from time to time the estimation methodology is revised due to reasons that include: improvement in data sources and systems and changes in the national economic structure.  In this regard the first benchmark of 2001 was done in 2003 and now the National Institute of Statistics of Rwanda is in the process of rebasing the benchmark to 2006 (Republic of Rwanda, NISR, 2010: 1-11).

4.4. The role of Supply and Use Tables/Input-output Table in the perspective analysis of economic development

4.4.1. Estimating the quality of life with input-output table

The concept of the «Quality of Urban life» is decomposed into specific measurable indicators of urban quality. Those indicators are expressed in two kinds of quality of life estimates that can be made with I-O data given a level and mix of economic activity in the area:

1. How much of the by-product is produced, and by whom?

2. What expenditures are being made, and by whom, to produce the by-product or, in the case of negative valued by-product, to abate their production or reduce their current levels?

And they are three different ways in which I-O can be used to make these estimates:

4.4.1.1. The Linkage Technique

The linkage technique is addressed to the question of how much of the by-product is being produced, and by whom. It can estimate the quantity of by-product being produced in their physical or value terms.

In Rwanda, the linkage method for indicators of water, air, and land, that can incorporate nonlinearities when they are joined with the usual industry, can be developed.

4.4.1.2. The Activity Specification Technique

The activity specification technique to estimate input-output sector expenditures directed toward influencing the quality of urban life. Such expenditures are often used directly as indicators of quality of life, or as quantitative approximations to the efforts of specific sectors to improve quality (Brody A. & Carter A.P., 1971: 52).

For example: indicators related to health, recreation, pollution and accident and crime prevention are the main fields where I-O Table can be used in Rwanda.

4.4.1.3. The Dummy Sector Technique

In contrast to linkage and activity specification, a dummy sector analysis allows explicit calculation of expenditures required to achieve a predetermined «target» level of indicators.

The potential application of these techniques to planning for regulation, control, abatement, and incidence of indicator production and some of its short-comings may be stated as follow:

The techniques are relevant to indicators in the natural, community services, and infrastructural environments. The community services tend to measure input quality rather than output quality; linearity assumptions seriously weaken indicators measurements in the infrastructure and natural environment; many externalities are not included in natural environment indicators, relative price assumptions weaken the economic environment indicator measurements; and finally difficulties rise because while many indicators involve stock concepts, input-output analysis estimates many changes rather than indicator level (Brody A. & Carter A.P., 1971: 46).

I-O Table is designed primarily to describe the important relationships among markets and to measure their consequences. When we are interested in the quality of life in a given area, the regional model is probably more appropriate (Brody A. & Carter A.P., 1971: 46). Also, there are issues concerning the type of activities that should be included in the «structural» part of I-O. At the national level, identifying household, government, and investment in final demand in Rwanda has generally proved effective for example.

For urban analyses, however, strong arguments can be made for including local government, household and investment as part of the endogenous structure. Additionally, there are questions regarding the kind of sectoring that are most appropriate for urban input-output tables. A number of sectors in the usual I-O tables are directly related to the quality of life in the sense that their «output» measures correspond to specific quality of life indicators (Brody A. & Carter A.P., 1971: 47). For example, household incomes and welfare expenditures can readily be translated into indicators of quality of life in the context of sustained economic development in Rwanda.

Quality of life indicators can be viewed as outcomes or by-products associated with the production and consumption activities represented by the inter-industry transactions. Some of these outcomes represent a social cost, as in the case of pollution. Other outcomes such as sector-provided or healthcare represent positive contribution to the welfare of urban residents.

4.4.1.4. Applying Techniques to Specific Quality Indicators

4.4.1.4.1. Linkage application

The application of the linkage technique to economic indicators in Rwanda would be considerably enhanced by the disaggregating of the household sector into income groups. These disaggregated data could then be used directly by linkage technique. For example, numbers of high, medium, and low income workers, average and medium income, proportion of workers above some poverty line can be obtained by using the estimates of the levels of output of the producing sectors (Agriculture, Industry, and Services) in combination with the appropriate coefficients showing the type of labours used by each sector. The appropriate disaggregation of Household for Rwanda seems to be based on Region and Activity, as stated below:

Households

Rural

Urban

Agricultural

Self-Employed

Non-Agricultural

Self-Employed

Wage-

Earning

Agricultural

Self-Employed

Non-Agricultural

Self-Employed

Wage-

Earning

Applying linkage to community service indicators requires desegregation of the government sector into specific functional activities. Indicators can be linked to expenditures on these functional activities: Examples of this type are: Pupil per teacher, Student by class room, Hospital and Clinics per unit of population. However, as public service output quality measurements are improved they can be used in place of the input quality measurements by linking them to functional expenditures.

Linkage Technique would help Rwanda policymakers and macro-accountants to disaggregate and to specify labour categories in Rwanda, the disaggregation may be helpful also when studying the impact of Services Sector in total economy of Rwanda. Disaggregation of labour categories may be stated as follow:

1. Unskilled Labour (No-education and primary education)

2. Semi-skilled Labour (Secondary Education and Vocational Training)

3. Highly Skilled (University Degree)

4.4.1.4.2. Dummy technique application

In Rwanda dummy sector technique can be used for analyses of land pollution, land degradation, and land use. For the land pollution dummy sector combines coefficient that measure the amount of solid wastes disposed of by the using sector into landfills or dumps with coefficients measure the amount of input used in the land reclaiming or cleaning sector.

To estimate land use, policymakers in Rwanda have to create two land related sector:

· Space occupied by buildings

· Non building space

With knowledge of the space currently available, the level of conversion of raw land into sector-usable land in the aggregate and separately for each producing sector, household, and government can be estimated, given the final demand specification. Such information can be useful also in showing the relative amount of land used and available in the provision of housing services, recreation, commercial enterprises, and transportation facilities.

The linkage technique can allow planers in Rwanda to identify the producing sector and the kind of final demand sales that significantly influence the rate of by-product output flow. Such information is relevant particularly to taxation and regulation policies.

Planers would like to know the expenditure that various sectors make in seeking to control the by-product flow. Often these expenditures are not distinguishable from the sectors purchases required for the sectors goods and services production. The specification technique can provide some such information and permits calculation of how these expenditures would change as final demand changes.

Planers would like also to know the feasibility, in terms of expenditures and resources required, of achieving alternative rates of by-product output flow; the dummy technique can provide some such information necessary for Economic Development of Rwanda.

For example by stipulating target levels of allowable pollution and estimated deliveries to final demand, the dummy technique allows calculation of the level of resources that must be committed to pollution suppression activities. Such information is useful particularly for situation in which the government is seeking to reduce pollution directly to rough its own programmatic expenditure (Bulmer-Thomas V., 1982: 256-278).

Obviously, Supply and Use framework and Input-Output framework are not applied in Rwanda due to the lack of information in the following field even though System of National Accounts is experiencing improvement:

· Intermediate consumption by Product (Agricultural Products, Industrial Products, Services) and By industry (Agriculture, Industry, Service).

· Output of Industries (Agriculture, Industry, Service) by Products (Agricultural Products, Industrial Products, Services).

· Final Uses by Product (Agricultural Products, Industrial Products, Services) and by Category ( Final Consumption, Gross capital Formation, exports)

· Import by Products (Agricultural Products, Industrial Products, Services)

This problem of lack of information constraint the compilation of Input-Output table from Supply and use Tables in Rwanda in order to perform the above Techniques.

The first hypothesis «The development of Supply and Use Tables/Input-output Table has a significant role in the perspective analysis of economic development of Rwanda» was not verified because those tables are not applied as such in Rwanda, but if Rwandan Macro-accountants and planer come on the point of compiling those tables, they will play significant role in the perspective analysis of economic development of Rwanda as their usefulness have been stated above. The main root of these problems are technical reasons that include huge informal and non-monetary sectors (about 65% of the economy in 2006) and data availability among others (Republic of Rwanda, NISR, 2010, GDP Annual Estimates for 2009 based on 2006 benchmark).

Even though Rwanda is suffering from the lack of information to compiled Supply and Use Tables and Symmetric Input Output Table, SUT linear models are applied to provide some macroeconomic indicators such as GDP, Value Added, Consumption, Investment, Import and export but further analysis from those figures are not possible because they are totals but not by Industries (Agriculture, Industry, and Services) and by Products (Agricultural Products, Industrial Products, Services). Therefore that information is not sufficient as that provided by SUT.

4.5. The role of Supply and Use tables/Input-Output Table in economic analysis and prevision, decision taking, and policy making for a sustained economic development

In addition to the role of Supply and use framework mentioned in the above part, this framework serves also as a basis for various interconnections with satellite accounts, such as Social Accounting Matrix (SAM), Employment Statistics, Linkage with other physical flows related to Environmental issues ( emission, waste, sewage) and other forms of Satellite System for tourism, Transport, health and education.

Various Input-Output models as shown above can be used to evaluate with the new dataset the economic and environmental impacts of different policies on macroeconomic variables such as employment, GDP, consumption, investments, competitiveness, etc. and on environmental variables, such as CO2 emissions and resource consumption. Hence, the IO model shall provide a powerful tool for assessing economic and environmental impacts on the policies proposed by the Planners and/ or Policymakers in Rwanda.

The second Hypothesis «Supply and Use tables/Input-Output Table have significant role in economic analysis and prevision, decision taking, and policy making for a sustained economic development of Rwanda» was also not verified because the use of SUT and IO models are not applied as such in the economic analysis of Rwanda. But basing on the above analysis it should be better to compile those tables in Rwanda in order to reach a Sustained Economic Development.

Because those tables are not available in Rwanda the following analysis was based on SUT linear model which provide a limited number of macro-economic indicators with limited information, and the focus was made on GDP as the main aggregate from this linear model and on HDI as rich measurement of Economic Development derived from three component: GDP per Capital, Life Expectance, and Literacy.

The following analysis was adopted in the way relating production and expenditure approaches to compute GDP and other Economic Indicators towards Economic Development.

4.5.1. Quality of life, poverty and economic inequality

Some desirable features that one may think of are reflected in GDP: Spacious, well constructed homes, good restaurants and stores, a variety of entertainment and high quality medical services. However other indicators of good life are not sold in market so that they may be omitted from GDP.

In Rwanda absolute poverty has been declining. Today many families whose income is below to days' official line is 57% and own their health insurance (htt://www.undp.org.rw/Poverty_Reduction.html).

But, even though absolute poverty seems to decrease in Rwanda, inequality of income has not generally well improved. In contrast, because GDP focus on total production rather than on the distribution of input in all sectors or production from those sectors, therefore GDP does not capture the effects of inequality (htt://www.undp.org.rw/Poverty_Reduction.html).

4.5.2. GDP and economic well-being

Even though, GDP is an imperfect measure of economic well-being. Among other factors affecting well being omitted by the real GDP are the availability of leisure time, non-market services such as unpaid homemaking and volunteer services, environmental quality and resource conservation, and quality of life indicators such as low crime rate. The GDP also does not reflect the degree of economic inequality in country; because real GDP is not the same as economic well-being, therefore proposed policy should not be evaluated strictly in terms of whether or not they increase the GDP. But this gap may be fulfilled using SUT and IO-T.

Although the GDP is not the same as economic well-being, it is positively associated with many things that people value: better homes , better life, better health, higher life expectancy, higher rate of literacy. This relationship between real GDP and economic well-being tend to evaluate economic development of Rwanda and this relationship has led Rwanda to the improvement of their way of producing, saving and consuming, health and education in search of better life and has motivated policymakers in Rwanda to try to increase the rate of economic growth oriented to economic development of Rwanda through out many strategic policies such as EDPRS, RSSP.

Obviously, as the model of production and expenditure improve and that the GDP increases, Rwandans are likely to possess more and better goods and services. On average, like the GDP of Rwanda is increasing, Rwandans tend to enjoy larger, better constructed, and more comfortable homes, higher quality food and clothing, a greater variety of entertainment and cultural opportunities, better access to transportation and travel, better communications and sanitation, and other advantages.

Through 10 years ago, Rwandans have made tremendous sacrifices and taken great risks to secure a high standard of living themselves and their families. In fact this initiative may be better viewed in SUT structure year by year and improvement of satellite accounts data which their improvement may ameliorate Rwanda's economic development indicators such as HDI, Life expectancy, people living in good hygienic conditions.

Beyond an abundance of consumer goods, the increase of GDP brings other basic advantages. Those advantages include some important indicators of well-being, including life expectancy, reduce in infant and child mortality rates, number of doctors, measures of nutrition and education opportunity, but all those factors may be captured in satellites accounts in order to perform further analysis with STU and IO-T in SAM «education account, Health account, Environmental account» and compiled with GDP from SUT. One may conclude from the list of important factors omitted from the official figures that GDP is useless as a measure of income welfare. But as explained above GDP has a closer relationship with Socio-Economic Well-being of Population.

Clearly, in evaluating the effects a proposed economic policy, considering only the likely effects on GDP is not sufficient. Planer must also ask whether the policy will affect aspect of economic well-being that is not captured in GDP. Environmental regulations may reduce the production of some products as wood, fish, and pottery for example, consequently decrease of GDP; but that factor is not sufficient basis on which to decide whether such regulations are good or bad. The right way to decide on that question is to apply cost benefit principle. Therefore to promote Economic development, Rwanda policymakers have to think about how to introduce SUT and IO frameworks in order to complete necessary information rather than focusing only on the output from Production and Expenditure Approaches due to its deficiency as a measure of Economic Development.

4.5.3. Environment quality and resource depletion

Another macroeconomic question concerns the impact or economic growth on environmental quality. Do high rate of growth that is, increase in GDP of Rwanda, implies greater environmental degradation or might the opposite be true? It is to note that «some pollution increases during the early stages of a country's development and then begins to diminish as country gain adequate resources to tackle pollution problems». This happen because at low incomes' people tend to value development over environmental quality, but as the country achieves greater wealth it willing to devote greater resources to environmental quality improvements. This is a matter of greater importance for Rwanda.

Rwanda however, was thought to have fewer environmental problems because their reindustrialized technology was more environmental benign, and it had no yet committed itself to a materialistic style of life. Ideas have changed, however. For one thing, it has become clear that massive environmental degradation has occurred in Rwanda; rural areas have seen large-scale soil erosion and water-quality deterioration, deforestation and declining in soil productivity. But the government of Rwanda is trying to rehabilitate all those constraints towards sustainable economic developments.

A number of efforts have been made to incorporate factors like air quality and resource depletion into a comprehensive measure of GDP. Doing so has been difficult, since it often involves placing a monetary unit value on intangibles, like having clean river as it is the policy of Rwanda by eradicating erosion, planting bamboos at least in 50 m from rives or lakes and resource conservation are hard to measure even though forests conservations are being developed by creating Nation Park to promote Tourism in Rwanda.

Table 4.3. Environmental Indicators

Environment

Threatened species

2009

53

Forested area (% of land area)

2007

21.7

CO2 emission estimates (000 metric tons and metric tons per capita)

2006

795/0.1

Energy consumption per capita (kilograms oil equivalent)

2007

19

Rainfall, total mean (millimetres)

 

1028

Source: NISR: Statistical Yearbook 2009 Edition: 64-66.

4.5.4. Tourism

The movement of population across national borders is another mark of integration and development. In Rwanda some of expenditures on tourism sector are captured by GDP through investment or gross fixed capital formation induced by private sector or government. And some others are captured in Tourism satellite accounts.

Receipts from tourisms were 6.5% of export in 20009. The receipts from tourists has increased the capacity of Rwanda's economy and improved also the Rwanda's rest of the world account. More further, due to development of tourism Rwanda's gross saving had increased from 25 billion Frw in 1999 to reach 404 billion Frw in 2009 (Republic of Rwanda, NISR: Statistical Yearbook 2009: 64-66).

4.5.5. Human Development Index Analysis

HDI trend decreased from 1985 to 1994 due to war. This decrease was explained by the low GDP per capital, decrease in life expectance and low literacy level, Low investment, Low Export and high Import, Low productivity in Agricultural sector, and this period was characterized by Gini coefficient of 28.9 (1980) which shows how the income was highly unequally distributed among pupation.

HDI has increased from 1995 with the economic rehabilitation and reorientation, from since economic activities were boosted and the production begins to increase. These policies caused an increase in GDP per capita and the recent figures show that GDP per capita was 213.9 current $ in 2000 and 258.8 Current $ in 2005 to reach 458.5 current $ in 2008. The Gini coefficient increase from 28.9 in 1980 to 46.8 in 2007, with the life expectance at birth of 51 years in 2009, and in Education data of 2005-2008 show a Primary-Secondary gross enrolment ratio of women and men per 100 of 89.7 and 98.6 respectively. But, even though HDI experienced improvement, Rwanda is steal classified in Low Developed Countries at Rank 167 in 2006 with HDI lower than 0.5 (Republic of Rwanda, NISR: Statistical Yearbook 2009: 5-121; Human Development Report 2009).

Figure 4.2. Human Development Index Trend (1980-2005)

The Urban population growth from 2005 to 2009 was estimated to 4.2% against 2.4% in rural areas. These figures show that many person in Rwanda are concentrating in town where they are expecting good life (Sanitation and Hygiene), and due to those factors in 2007, 18% of population of Rwanda lived in urban areas. And the large wage gap between rural and urban population, especially for unskilled and semiskilled labour, is the main cause of that dramatic increase in number of people living in urban areas in Rwanda.

Consequently, this movement has an important contribution in redressing rural development, because flow of formal transfers from people living in urban areas back to their rural region of origin has been increased rapidly and has become the larges source of capital for many rural areas in Rwanda.

Figure 4.3. Evolution of Human Development Index

If the HDI in Rwanda continue to increase as it was increasing last 30 years, the HDI of Rwanda can exceed value of 0.5 in 30 years beyond the period of the study.

4.6. Challenges in information provided by Linear Model

From the analysis of SUT and IO-T and Linear Model, it is remarkable that Linear Model does not provide sufficient information necessary to measure the role of System of National Accounts in the perspective analysis of economic development of Rwanda. The main challenge encountered by the Linear Model is the lack of information in Intermediate Consumption by Product and by Industry. This information is the main intra in the so-called central equation system for input-output analysis which offers multiple approaches for analysis. Mathematically, this equation is defined as Z = B*(I-A)-1F, where B is a matrix of input coefficients for a specific variable (intermediate uses, labor, capital, energy, emissions, etc.), (I-A)-1 stands for the Leontief inverse, F represents a diagonal matrix for final demand and Z a matrix with results for direct and indirect requirements (intermediates, labor, capital, energy, emissions, etc.). Basically, this approach would provide quantitative assessment (José M. Rueda-Cantuche et al., 2005: 8; Eurostat, 2002).

The following analysis tried to estimate SUT and IO-T for Rwanda in 2007 basing on the main indicators provided by Linear Model. Information not provided by Linear Model are highlighted in order to show its deficiency and to demonstrate that with Linear Model it is not easy to perform central equation system for input-output analysis. In order to estimate those tables some assumption had been stated and some Ratios had been fixed in order to estimate attached indicators:

· The row and column items were computed basing on percentages of GDP decomposition by sectors [Services 46%, Industry 14%, and Agriculture 40 (John RWIRAHIRA, 2008: 11)].

· Each Product is produced in its own specific way, irrespective of the industry where it is produced.

· Each industry has its own specific way of production, irrespective of its product mix.

· Input in each sector and Production from each sector were estimated basing on that Intermediate consumption was 122.8 % of GDP and Production was 212.87% of GDP (AfDB-EIU-UNIDO Infobase-World Bank-Wold Economic Forum-World Factor Book, 2008: 1-2; htt://www.docstoc.com/docs/48810565/RWANDA--Kigali)

· The distribution of Intermediate Consumption and Production was based on percentage of GDP decomposition by Sectors (Agriculture, Industry, and Services).

Table 4.4. Estimated Simplified Supply and Use Framework of Rwanda in Billion Frw (in Constant 2006 Prices)

 

Products

Industries

Final Uses

Total

Agricult. Products

Industrial Products

Services

Agri-culture

Industry

Service Activities

Final Con- sumption

Gross Capital Formation

Exports

Products

Agricult. products

 

334

117

384

728

138

78

1778

Industrial products

117

41

134

255

48

27

622

services

384

134

442

837

158

89

2044

Industries

Agriculture

630

220

724

 

 

1574

Industry

220

77

253

551

Service Activities

724

253

833

1811

Value Added

 

740

259

851

 

1849

Imports

204

71

234

 

 

509

Total

1778

622

2045

1574

551

1811

1819

344

194

10738

The above Estimated simplified SUT shows the information which are not easily available in Rwanda, those information are: Input, Production, Final use, Value Added, and Import Matrices, even though they are available in single element for example, Import Total is available but import by products is not available, Export Total is available but Export by Product is not available in clean forms, Value Added Total is available but Value Added by Industry in not easily available because they are available in percentages of GDP. Those are the weakness of not using integrated SUT and IO-T. The part in yellow is not applicable.

Table4. 5. Estimated Simplified Symmetric input-output table (product by product) of Rwanda in Billion Frw (Constant Price)

Products

Products

Final Uses

Total

Agricult. Products

Industrial Products

Services

Final Con- sumption

Gross Capital Formation

Exports

Agricult. products

334

117

384

728

138

78

1778

Industrial products

117

41

134

255

48

27

622

services

384

134

442

837

158

89

2044

Value Added

740

259

851

 

1849

Import

204

71

234

 

509

Supply

1778

622

2045

1819

344

194

6802

From SUT a Simplified Symmetric Input-Output Table was estimated, the information from this IO-T were used in the estimation of Input Coefficients in order to perform further analysis related to economic development, even though the analysis in this study was limited on the use of Input Coefficients further analysis for economic development may be based on those table and on the Input Coefficients Matrix through many techniques to evaluate the quality of life such as: Linkage, Activity Specification, and Dummy Sector Technique.

Apart from those techniques STU and IO-T are the basic steps in constructing SAM, because most of the details from those tables are carried over without modification to SAM, where there are reassembled in Matrix form (GRAHAM Pyatt, 1999: 365-386), and SAM has an important advantages on analyzing Economic development of an economy, among them: reduction of risk of confusion, and it emphases on consistence and the importance of complete articulation, both of which are the essence in trying to understand feedback systems, in general, and the interdependence of the distribution of income and the structure of income, in particular.

Table4.6 Input Coefficients

Products

Products

Agricult. Products

Industrial Products

Services

Agricult. products

0.19

0.19

0.19

Industrial products

0.07

0.07

0.07

services

0.22

0.22

0.22

Import

0.11

0.11

0.11

Wages, Salaries etc. + Oper. Srplus

0.42

0.42

0.42

Supply

1

1

1

The Input Coefficients were computed in order to highlight the role of using Leontief inverse in the perspective economic analysis, its role is not only limited in the central equation system for input-output analysis but also it may be used to measure ecosystem structure and function, sensitivity, Cycling, dependence and contribution effects between compartments, loop analysis tropic dynamics, and self-organization (Manfred Lenzen, 2006: 334-342).

These analyses are efficient to measure economic development of an economy, but due to the non availability of that information in Rwanda, those depth analyses are not done, therefore its use in economic development is still under considered. The Leontief inverse can play a consolidated role in economic development of Rwanda as it has a multiple uses.

Through this study its consolidated role was shown in central equation system for input-output analysis to balance production by Products and by Industry and in output function to measure the impact of increasing or decreasing intensity of Input Coefficients in an economy.

Leontief inverse = (I-A)-1

4.6.1. Use of central equation system for input-output analysis

Z = B*(I-A)-1F

The above function is used as a central equation system for input-output analysis which offers multiple approaches for analysis. After verifying that the production provided using the above equation basing on Input Coefficient Matrix, Leontief Inverse Matrix, and Diagonal Matrix of Final Demand is equal to the production Matrix in the above Simplified Supply and Use Table, therefore further analysis may be made and (Z) Matrix can be useful when analyzing the impact of how the increase in Input will influence the Total production within the whole economy (José M. Rueda-Cantuche et al., 2005: 8).

4.6.2. Use of output function to measure the impact of increasing or decreasing intensity of Input Coefficients

X = B* * (I-A)-1y

B is a row vector matrix from Matrix A for Agriculture, Industry, and Services, and B* Matrix is equal to Matrix A (Input Coefficients Matrix) (Eurostat, 2002: 17-23).

X = Output from Sectors which contribute in production within an economy.

Basing on the equation system for input-output analysis, Output from each sector can be computed, and the above equation provide total production in the three sectors, and the solution is the same as the figures in Supply and Use Tables.

Through this study the focus was made only on the policy of increasing Input Coefficients from product (i) to industry (j). The policy used in this study was to test the impact of fixing input coefficients on 0.30 for each coefficient other things held constant, in order to see how this policy may or will influence the production basing on the production of 2007.

The results of this policy are stated in the following table, and the highlighted column contain the higher production; therefore this policy will be efficient when the Coefficient from Services (product) to Industry (industry) (S-I) is increased and at this stage the production will be maximized basing on the Input and Production Matrices of 2007. This means that the increase of services Inputs in Industrial sector has a positive effect to increase economic capacity of Rwanda.

Table 4.7. Changes in Input Coefficients

 

Period 1

The Impact of Increasing Input Coefficients to 0.3 on Sectoral Production

P (2007)

A-A

I-A

S-A

A-I

I-I

S-I

A-S

I-S

S-S

Agriculture S.

1574

2174

1754

2187

1877

1706

1927

1676

1609

1704

Industry S.

551

606

567

607

1513

970

1673

587

563

596

Services S.

1810

1990

1864

1994

2158

1962

2216

2218

1950

2327

Total Product.

3934

4770

4186

4788

5548

4637

5816

4481

4122

4627

Assuming that the Input-Output Coefficients as derived from Input-Output Table remain more or less constant for a certain period of time (say a couple of years), they may in a meaningful way be used in so called Input-Output Models or Inter-Sectoral Models, which describe the relationship between the output of various branches on the one hand and their different input requirements on the other hand as used in the above analysis. Such kind of models may play a role in different types of analysis related to policy preparation and planning in Rwanda as shown in this research, and input out put approach would be a powerful too in analyzing and planning process of economic development and industrial growth in Rwanda.

Figure 4.4. Change in Production due to Changes in Input Coefficients (2007 Basic Years)

Due to the lack of information in SUT and IO-T this analysis is not easy to apply on the economy of Rwanda, the results from the analysis of economy basing on STU and IO-T stipulates that is the increase in production which determine the quantity to Export and/ or the quantity to import, the evolution of industry sector and its contribution to development, and the improvement of the increasing in production of Services Sector has an important impact when analysing satellite accounts such heath, environmental, and Tourism satellite accounts.

Table 4.8. Used Abbreviations

P(2007)

Basic Production base Year 2007

A-A

Agriculture Inputs in Agriculture Sector

I-A

Industry Inputs in Agriculture Sector

S-A

Services Inputs in Agriculture sector

A-I

Agriculture Inputs in Industry Sector

I-I

Industry Inputs in Industry Sector

S-I

Services Inputs in Industry Sector

A-S

Agriculture Inputs in Services Sector

I-S

Industry Inputs in Services Sector

S-S

Services Inputs in Services Sector

Chapter V: CONCLUSION AND RECOMMENDATIONS

5.1. Conclusion

Supply and Use Tables can play important role in the economy of Rwanda as an integrated framework of the National Accounts. With existing policies to improve SNA, Rwanda's System of Accounts tend to be fully Consistent with the world-wide System of National Accounts (SNA 1993) but it suffers from loss of information to implement SAM as stated in Chapter IV because Income Approaches to compute to compile SUT and to compute GDP is not applied in Rwanda. However, Rwanda's System of Accounts is focused more on the circumstances and data needed in Rwanda and Supply and Use System remain unused due to its complexity.

The Input-Output Framework basing on the information from Supply and Use Framework consists of three types of tables: Supply Tables, Use Tables, and Input-Output Tables.

In Chapter IV it was proved that in Rwanda rather than using Supply and Use Tables linear model was adopted in production and consumption models. It only reflects total Domestic Production, Import, Export, Savings, and Consumption behaviours in Rwanda.

Supply and Use Tables serve not only Statistical but also analytical purpose, especially when they are transformed into Symmetric Input-Output Tables. Basing on the analysis done in Chapter IV, Input and Output Framework is not available, and therefore IO-T can not be available, but through the analysis of GDP the example of GFCF shows for each sector the use of Investment which were necessary to produce the primary and secondary output, the analysis shows also how the education system was improved in the period of 1999 to 2009 due to the investment done in this sector, and investment injected in health system justify the reduction of morbidity and mortality in Rwanda during this period as result there has been increase in Life Expectance.

Along this period, it was proved that the use of Linkage Technique in Rwanda can play an important role in development. The linkage can be applied though many policies of the Government of Rwanda through which households can be disaggregated into income group.

Apart from Linkage technique, the importance of Dummy technique in economic development was proved when analysis management of land, Land productivity and land protection. In order to manage land the government of Rwanda has implemented different policies such as Land Consolidation, IMIDUGUDU, and other policies for managing swamps.

Also the role of activity specification technique was emphasized when trying to analyze the socio-economic welfare during the period of 1999 to 2009 whereby the government of Rwanda has implemented different Program such as PRSP (Poverty Reduction Strategic Paper) in 2000 and EDPRS (Economic Development and Poverty Reduction Strategy) in 2005 and this Specification Technique is used to estimate Input-Output Sector expenditures directed toward influencing the quality of Urban and Rural life in Rwanda.

This study proved how the estimation of quality of life lead to the estimation of social welfare in Rwanda through GDP per Capita, Literacy, and Life expectancy. This study shows how Literacy rate has improved due to the important investment injected in education sector and the education for all Policy, and also Life expectancy has been improved from 1999 to 2009 due to the reinforcement of health sector and this is explained by the reduction of Morbidity and Mortality in Rwanda during this period.

From Supply and Use Tables, Symmetric Input-Output Tables to the Estimation of Quality of Life and Social Welfare, Economic Development can be measured. This study proved this, and showed that the best and rich measure of Welfare for Economic Development is the Human Development Index, and the analysis shows how the improvement in HDI was from 1980 to 2009 (0.357 to 0.477). Even though there has been an improvement, Rwanda is still classified into Low Developed Countries (0.50-0.00 HDI) and in Low Income Countries (500$ Per Capita Income), but the forecast states that Rwanda will reach the group of Medium Developed Countries (0.80-0.50 HDI) in the following 30 years.

The results of this study showed that the first hypothesis was not verified, because SUT/I-O's significant role in the perspective analysis of economic development of Rwanda is not recognized. This means that, even though the role of SUT and IO-T in the perspective analysis of economic development was proved, SUT and IO-T are not available.

The second hypothesis was also not verified because as SUT and IO-T are not available, their role in economic analysis and prevision, decision taking, and policy making for a sustained economic development of Rwanda are not applicable.

The reason why I have combined SUT/I-O Analysis with the Economic Development of Rwanda was to highlight the role of SUT/I-O analysis in economic development and to show that they have a key role to play in the perspective analysis of Economic Development of Rwanda if they are compiled. Much analysis of economic development of Rwanda needs to be based on economy wide basis (e.g. development planning) and this suggests the need for macro-economic approach; most macro-models however are so highly aggregated that they must perforce assume a degree of resource mobility which is just not present in Rwanda. The only answer seems to be SUT/input-output analysis, which is macro in terms of its coverage and get «micro» in terms of its approach.

The interface of SUT and economic development is one of the most exciting and most challenging fields of System of National Accounting. It involves relevant aspects such as planning, budgeting, auditing, taxation, finance, programming, capital formation, project appraisal, and yet others which pertain the overall aim of economic development at both micro and macro levels.

This study was designed to highlight the role of SUT and its wider range of responsibilities imposed on accountant in developing countries like Rwanda, and how it demands a high level of intellectual calibre, knowledge and capacity, and determination so that the accountant responds to the needs of economic development process of Rwanda.

5.2. Recommendations

Rwanda National Accountants have to make an effort and introduce the income approach to compile Supply and Use Tables and Input-Output Table and to compute GDP, because this approach could help in Social Accounting Matrix designing.

The use of SUT and SAM should allow the evaluation of relative burden of taxation across households types and should also allow to consider how best to use taxation and transfers system to alleviate poverty. Through this, the government should collect taxes and spends the funds on public projects and on transfers to poor segments of the population.

In Rwanda the youth occupies an important portion of the total population. Even though, policy should focus not only on youth's opportunities but also on their capabilities and second chances. This will increase the productivity capacity of Rwanda, and transformation initiative which also will increase value added on goods and services which are domestically produced for final consumption or for export.

The government of Rwanda should make the services work. Making services work requires changing the institutions relationship among key sectors.

Rwanda's economic growth «a major determinant of human development outcomes» would need to be substantially faster than it has been in last 10 years to make dramatic improvements of economic development of Rwanda.

The government of Rwanda should build blocks of economic growth, human capital, empowerment, and social protection. The blocks are mutually dependent. And these blocks are all captured in SUT/I-O tables through salaries as remittances of human capital, empowerment and social protection through investment and economic growth through GDP.

SUT/I-O Tables should be used to forecast and predict the development of Rwanda. Basing on data in SUT/I-O tables it is possible to visualize the behaviour of SUT/I-O Tables in previous years. SUT/I-O Tables Should also be used to foster balance of payment by improving investment for promoting export.

In Rwanda environmental protection activities should be carried out by all sectors. They should be concentrated, however in three sectors which sell protection services: a) Government, b) Trade and transport and c) other services which provide private waste disposal services, environmental consulting and recycling.

However, to maintain the progress towards economic development, the researcher proposed to promote skilled personnel including accountants and other economic planners able to compile and consolidate SUT and IO-T, in order to design plans and programs that aim at enhancing the economy. In addition to this; social, commercial and credit conditions should be accessible for farmers. And again, Supply and use identity should serve as a basis for various interconnection with satellite accounts such as labour statistics, linkage with physical flows (land use, energy), linkage with other physical flows related to environmental issues (emission of CO2, waste, sewage) and other form of satellite accounts system for tourism, transport, health, and education.

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------------------, 1999, Some Relationships Between T-Accounts, Inout-Ouput Tables and Social Accounting Matrices : Economic System Research, Vol. 11, No. 4,

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José M. Rueda-Cantuche, Jörg Beutel, Frederik Neuwahl, Andreas Löschel, Ignazio Mongelli, 2005, A Symmetric Input-Output Table for EU27: Latest Progress

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APPENDICES

Figure 1. Appendices: From Supply and Use tables to Input-Output Tables

Supply Table

Use Table

Production Matrix

Use table for Imports

Use table for Domestic output

Transformation of Supply and Use Tables to Symmetric Input-Output Table

Technology Assumption

Assumption of fixed sales structure

Model A Production Technology Assumption

Model B Industry Technology Assumption

Model C Fixed Industry Sales Assumption

Model D Fixed Product sales Structure Assumption

Product by Product Input-Output Tables

Industry by Industry Input-Output Tables

Source: José M. Rueda-Cantuche, Jörg Beutel, Frederik Neuwahl, Andreas Löschel, Ignazio Mongelli, 2005, A Symmetric Input-Output Table for EU27: Latest Progress: 20.

Table 1. Appendices: Transformation of make and use matrices into symmetric input-output tables

 

MODEL A

Product by Product

Product technology based

MODEL B

Product by Product

Industry technology based

MODEL C

Industry by Industry

Fixed Industry sales structure

MDEL D

Industry by Industry

Fixed Product sales structure

Input Coefficients

AA(U,V) = UV-T

AB(U,V)= U(diag(Ve))-1V(diag(VTe))-1

AC(U,V) = diag(Ve)V-TU(diag(Ve))-1

AD(U,V) = V(diag(VTe))-1U(diag(Ve))-1

Intermediates

ZA = AA(U,V)diag(VTe)

ZB = AB(U,V)diag(VTe)

Zc = AC(U,V)diag(Ve)

ZD = AD(U,V)diag(Ve)

Final Demand

FA = Y

FB = Y

FC = diag(Ve)V-TY

FD = V(diag(VTe))-1Y

Value Added

VAA = WV-Tdiag(VTe)

VAB = W(diag(Ve))-1V

VAC = W

VAD = W

Output

qA = (I-AA(U,V))-1FAe

qB = (I - AB(U,V))-1FBe

gC = (I-AC(U,V))-1FCe

gD = (I-AD(U,V))-1FDe

Negatives

YES

NO

YES

NO

Legend for the transformation of make and use tables into input-output tables at basic prices A= Technical Coefficients Matrix Y = Matrix for Final demand by Product and Category VT = Supply Matrix W = Matrix of Value added by component and by Industry U = Use Matrix e = Column Vector of Ones Note: T will denote transposition and -1 inverse of matrix. Since the two operations commute, their composition may be denoted -T. Also, diag will denote diagonalization whether by suppression of the off-diagonal elements of a square matrix or by placement of the elements of a vector

Source: José M. Rueda-Cantuche, Jörg Beutel, Frederik Neuwahl, Andreas Löschel, Ignazio Mongelli, 2005, A Symmetric Input-Output Table for EU27: Latest Progress: 21 Table 2. Appendices: Input-Output Table Set in the Form of a Social Accounting Matrix

(i) (ii) (iii) (iv) (v)

Domestic Production Institutions

Products Activities Factor Services Domestic RoW TOTALS

Domestic Production Use of Raw Dom. Final Export of goods Demand (i) Products Materials Demand (market & non Factors for Products . Prices) Services (f.o.b) market prices

(ii) Activities Gross Out- Gross output . . Puts of products . (Producer (producer . Price ) price)

(iii)Factor Services Payments for Demand for . Factor services fact. services . . . (including VAT) market prices

Institutions I. Taxes on I. Taxes on Factor services Factor income Total income (iv)Domestic Products + activities + supplied plus received from generated by . . . import operating surplus VAT receipt abroad contributions . . . duties of Government or production

(v)Rest of the World Import of Factor income Total domestic . . . goods and paid abroad expenditure on . . . . non-factor and imports of foreign goods . services factor services and services . . . (c.i.f)

TOTALS Supply of Gross outputs total supply of Total expenditure Total foreign . products at of products factor services on production expenditure . market valued at pro- at market prices at market prices on domestic . . prices ducer prices goods &services

Source: Grahan Pyatt, 1988, A SAM Approach to modeling, Journal of Policy Modeling, University of Warwick.