Academic journal article Contemporary Economic Policy

National Income Accounts: Measurement, Practice, and Welfare Implications of the Initial Estimates of Kosovo's GDP

Academic journal article Contemporary Economic Policy

National Income Accounts: Measurement, Practice, and Welfare Implications of the Initial Estimates of Kosovo's GDP

Article excerpt

I. INTRODUCTION

National income accounts (NIAs), along with price, labor and monetary/financial data, are key aggregate statistics in macroeconomic analysis. The development of NIAs constituted one of the most far-reaching innovations in applied economics of the early twentieth century, placing economic policy and its implementation on a firm and transparent quantitative base. For this reason, the implementation of a dependable and accurate system of NIAs is a key part of the development of economic policy management in emerging and transition economies. In the latter case, where there has been a separation of political units into newly independent states or, in the case of Kosovo, into autonomously administered areas, these NIA resources have to be created de novo. Consequently, providing resources to accurately measure national output, its components, and factors of production is a key part of creating the wherewithal for quantitatively evaluating economic and financial policies and, prospectively, for forecasting governme nt revenues and the impacts of alternative government policies.

These initial estimates of Kosovo's gross domestic product (GDP) were without time-series of recurring surveys of household, retail sellers, or firms to draw on, so household consumption was based on an August 1999 survey on household resources and expenditures. These were combined with government budget data from the Central Fiscal Authority (CFA), import data from the Customs Assistance Mission in Kosovo (CAM-K), and data on donor contributions as compiled by the Office of Southeast Europe (a cooperative agency of the European Community and World Bank). Two estimates of GDP from the expenditure side were obtained, and a third came from the factor side. This factor-input alternative provides a check on the estimate from the estimated expenditures on final goods and services. A short discussion of how the political resistance of the Kosovars to Serbian tyranny since 1989 explains the systematic underestimation concludes the discussion. Recommendations for systematic NIA procedures as well as a caution on the choice of tax base that could impede accurate NIA are provided in the penultimate section.

II. THE IMPORTANCE OF NIA DATA IN POLICY AND DEVELOPMENT ANALYSIS

The development of NIA statistics converted policy analysis from a rule-of-thumb-based guessing game to a quantitatively based science. Not only economic analysis but also the democratic need for transparency in governance have benefited measurably by this quantitative foundation for aggregate output. An indicator of the importance assigned to these advances is that the third and fifteenth Nobel Prizes in Economic Science were awarded largely for contributions to the development of national income statistics--to Simon Kuznets in 1969 and to Richard Stone in 1984. Their Nobel award citations also commended them for successful efforts to persuade their governments (U.S. and U.K.) to devote adequate resources to produce and maintain timely and accurate NIA data.

Stone's focus on the systematization of measuring national output led to another contribution--the creation of a uniform system of national accounts now used by virtually all nations. (1) He integrated "national income into a double-entry bookkeeping format. That way, every income item on one side of the balance sheet had to be matched by an expenditure item on the other side. The result was that Stone's double-entry method has become the universally accepted way to measure national income" (Henderson 1993b, p. 842). Thus GDP can be measured either as the market value of final product or as the total of the gross factor incomes, indirect taxes less subsidies used in producing it. Indeed, Stone's structure became the foundation for the U.N. System of National Accounts (SNA), first published in 1953, providing a uniform basis for all countries to report national output. (2) One indicator of the universal acceptance of the SNA is that the primary measure of national output is no longer gross national product but GDP, an accommodation of the SNA accepted by the United States, Germany and Japan, among others, whose primary aggregate income measures formerly was gross national product. …

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