The Final Consumption Expenditure of Households in Korea

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The Final Consumption Expenditure of Households
in Korea

• Sangkyo HAN
• National Accounts Coordination Team
• Economic Statistics Department

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Contents

1. Introduction
2. GDP by Expenditure Approach
3. Estimation Method of the Final Consumption
   Expenditure of Household
4. Household Income Expenditure Survey Evaluation

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I. Introduction

• Korean System of National Accounts
• Introduction of 1993 SNA in 2004 at the time of
  the 9th rebasing from 1995 to 2000
• Additional implementation to 1993 SNA at the time
  of the 10th rebasing from 2000 to 2005
• E.g. introduction of chain-linking method,
  recognition of valuables as a separate item of
  gross capital formation
• 2008 SNA intended to be introduced in 2014 at the
  time of the 11th rebasing from 2005 to 2010

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I. Introduction

• Three aspects from which Korean National Accounts
  statistics are measured
• Production, Expenditure, Distribution
• Broadly known as production approach, expenditure
  approach and income approach
• The final GDP aggregates are determined as GDP by
  production activities.

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I. Introduction

• GDP by production
• Data sources survey data from the Statistics
  Korea, the BOKs self survey data and
  administrative data from government agencies such
  as the National Tax Services (NTS)
• GDP by expenditure
• Data sources survey data from the Statistics
  Korea, corporate financial statement,
  administrative data, customs clearance statistics
  and BOP statistics, etc
• GDP by income(compiled annually for nominal
  value)
• Data sources GDP estimates by production and
  expenditure, data from government and social
  security agencies, administrative data from the
  NTS, business analysis data and employment
  statistics

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Flow Chart on the Compilation of National
Accounts Statistics
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II. GDP by Expenditure Approach

• Conventional Estimating Process by Commodity Flow
  Method (CFM)
• Calculate domestic gross output in production
  side
• Derive total final demand by adding imports and
  deducting intermediate consumption and exports
• Calculate each expenditure item by multiplying
  the total final demand by the weight of each item
  stemmed from I/O table in base year

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II. GDP by Expenditure Approach
The conventional estimating process by CFM
Total supply (Gross domestic output Imports) Intermediate consumption Exports Total domestic demand Final consumption expenditure
Total supply (Gross domestic output Imports) Intermediate consumption Exports Total domestic demand Final consumption expenditure
Total supply (Gross domestic output Imports) ? Intermediate consumption ? Exports Total domestic demand Final consumption expenditure
Total supply (Gross domestic output Imports) ? Intermediate consumption ? Exports Total domestic demand Final consumption expenditure
Total supply (Gross domestic output Imports) ? Intermediate consumption ? Exports Total domestic demand Fixed investment
Total supply (Gross domestic output Imports) ? Intermediate consumption ? Exports Total domestic demand Fixed investment
Total supply (Gross domestic output Imports) Intermediate consumption Exports Total domestic demand Fixed investment
Total supply (Gross domestic output Imports) Intermediate consumption Exports Total domestic demand Inventories
Total supply (Gross domestic output Imports) Intermediate consumption Exports Total domestic demand Inventories
Total supply (Gross domestic output Imports) Intermediate consumption Exports Total domestic demand Inventories
(weight on total domestic demand)
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II. GDP by Expenditure Approach

• Problems revealed in CFM approach
• Lack of independence in the estimates for some
  expenditure components of GDP
• Introduction of new statistical techniques
  employing both the supply-side and the
  demand-side statistics
• Identifying economic trends more accurately by
  coping with changing statistical environments and
  by incorporating much more statistical data
• Enhancing accuracy, reliability of statistics,
  and transparency
• Ensuring objectivity of the estimation process
  recommended by IMF

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III. Estimation Method of the Final Consumption
Expenditure of Household

• Calculate base year and annual(final) figures
  based on consumer expenditure data
• Calculate annual(preliminary) figures by sum of
  quarterly (preliminary) figures
• Calculate quarterly (preliminary) figures by
  extrapolating alternative indicators with the
  year-on-year rates of change from the same period
  of the previous year
• Nominal figures by item and the total are
  estimated then real figures are calculated using
  a deflation method (deflatormainly CPI)

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Major Source Data Related to Household Final
Consumption Expenditure

Title Organiza- tion Cycle Date of release Survey method Major information
Census of Service Industry Statistics Korea Every 5 year Mar of the two years after reference date Face-to-face interview (investigator's entry) Sales by sub-classes, the sales ratio to consumers, etc. for the service industry(excluding transportation sector)
Wholesale and Retail Survey ? Annual Dec of the following year ? Sales by industry of the wholesale and retail sectors for non-base year
Service Industry Survey ? ? ? ? Sales of service industry for non-base year
Transport Survey ? ? Aug of the following year ? Sales of the transportation industry
Household Income and Expenditure Survey ? Monthly Quarterly (10th day of the second following month) Housekeeping book (respondent's entry) Volume, structure and trend of income expenditure of households
Retail Sales Statistics ? ? Monthly (following month-end) Face-to-face interview (investigator's entry) Trend of retail sales in terms of business type and group of goods
Service Industry Activity Index ? ? ? ? Value and volume indexes on sales-basis for the service industry
Shipment for domestic market ? ? ? ? Producers' sales activities and trend of shipment of the mining and manufacturing industry by item.
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III-i. Estimation Method in Reference year

• Final consumption expenditure of household
• Total expenditure in domestic market
• Direct purchases in domestic market
• by non-resident households
• Direct purchases abroad by resident households

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III-i. Estimation Method in Reference year

• Total expenditure in domestic market
• Total expenditure of goods
• Estimated based on sales by industry using ratios
  of selling to household consumers in the Census
  of Service Industry
• Disaggregated for expenditures by item using
  Household Income Expenditure Survey and other
  sources
• Total expenditures on services
• Based on the Census of Service Industry,
  Household Income Expenditure Survey, and et
  cetera

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III-i. Estimation Method in Reference year

• Direct purchases abroad by residents
• /Direct purchases in domestic market by
  non-residents
• Compiled based on the estimates of the external
  transaction account
• Estimate data by reclassifying Balance of
  Payments statistics (e.g. travel services and
  credit card usage)

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III-ii. Estimation Method in Current year

• Nominal value estimation method in current year
• Principally calculated in the same method as in
  reference year
• Estimated on different grounding sources
• E.g. Whole and Retail Trade Survey, The
  Service Industry Survey, The Service Industry
  Activity Index, et cetera (instead of The
  Census of Services Industry)

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III-ii. Estimation Method in Current year

• Real value estimation in current year
• Estimated by dividing nominal value into related
  deflators
• Nominal value exists under the COICOP
  classification system
• Add up nominal and real values by COICOP code to
  obtain the final consumption expenditure of
  households by purpose and by type

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III-ii. Estimation Method in Current year

• Direct Purchases by residents and non-residents
• Compiled based on external transaction account
  estimates
• Deflators for Direct Purchases Abroad by
  Residents Exchange-rate adjusted consumer price
  index of major travel countries
• Deflators for Direct Purchases in Domestic Market
  by Non-residents Domestic consumer price index

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V. Household Income Expenditure Survey

• Differences between National Accounts Statistics
  and Household Income Expenditure Survey
• Coverage (by subjects or by items)
• Bias due to the limitation of sampling method
• Classification system
• Limited compatibility between National Account
  and Household Income Expenditure Survey (HIES)

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?. Household Income Expenditure Survey

1. Coverage by Subjects

• National Accounts Households NPISHs
• HIES Households only!
• In addition, HIES excludes certain households1)
• 1) Farm and Fishery HHs, Communal HHs and HHs
  running restaurant and hotels in their own
  houses
• The Coverage Ratio is 90.5

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?. Household Income Expenditure Survey

1. Bias inherent in Sampling Method (HIES)

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

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?. Household Income Expenditure Survey

1. Different Classification Systems

• Classification Systems are different
• Ex) Withdrawal from income of Quasi-corporations
  
• Property Income (National Accounts) vs.
• Income for
  Self-Employment (HIES)

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?. Household Income Expenditure Survey

• USE of HIES in Compiling GDP statistics

• Total amount of income/expenditure/savings
  Pointless
• Absolute value by item level Limited
• Desirable to use detailed goods/service-level
  information(mainly increase rate) of HIES
  to estimate National Accounts

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?. Household Income Expenditure Survey

• USE of HIES Income Sector

• HIES mainly as a reference
• Only a few items are directly applicable
• Household Survey
• Current transfers between households (in current
  transfer paid)
• ?
• National Accounts
• Current transfers between households (in other
  current transfers)

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?. Household Income Expenditure Survey

• USE of HIES Personal Consumption Sector

• HIES is More useful than Income Sector because
• Many items are comparable in concepts or in
  classification system between HIES and Personal
  Consumption
• Subdivision of HIES items are most detailed
• Use of item-level absolute value (Benchmark year)
  
• Private tutoring fee, residence related services,
  household services, and etc. (of course, after
  parameterization)

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?. Household Income Expenditure Survey

• USE of HIES Personal Consumption Sector (contd)

• Use of weights information among items
• clothing and footwear related services,
  furniture, furnishings and household equipment
  and operation related services, and etc.
• First, Estimate total amount based on the Census
  of Service Industry and apply the HIES weights
• Use of increase rate
• In most items
• Retail Control Method determine total amount
  based on other statistics such as Whole and
  Retail Trade Survey

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