Technical Notes

1. Introduction
The 2000 Input-Output (I-O) Accounts of the Philippines is the ninth (9th) of a series of inter-industry studies of the Philippine economy since the construction of the first benchmark I-O table in 1961.  The first two series, 1961 and 1965 I-O accounts, were prepared and published independently by the National Economic Council (the forerunner of the National Economic Development Authority, NEDA) and the Bureau of Census and Statistics (now the National Statistics Office, NSO).  The next three tables (1969, 1974 and 1979) were collaborative works of these two offices.  With the creation of the National Statistical Coordination Board (NSCB), the succeeding series, 1985, 1988 and 1994, were produced as a joint undertaking of the NSCB and NSO.
The Input Output Accounts provide disaggregative measures of the economic structure of the country, which are not shown in the national accounts.  The development of the I-O tables and techniques has advanced economic analysis, providing planners and policy makers with a more detailed view of economic structures towards a more effective and specific translation of economic development plans and programs.
The Philippines has managed to construct the 2000 I-O Tables despite the limited resources, financial and manpower, allotted to statistical development.  As in the earlier I-O Tables, the 2000 I-O Accounts focuses on the performance of the different sectors of the economy and their inter-relationships.  The 2000 I-O also features some of the 1993 SNA recommendations like the new output concept for banks and insurance, enhanced valuation and accounting processes, etc.
The 2000 Input-Output covers the 240 by 240 industries and commodities. This is presented in transaction tables of technical coefficients and inverse matrices.     As in the past I-O’s, the current I-O Accounts was made possible through the collaborative effort of the National Statistical Coordination Board and the National Statistics Office.
2. Conceptual Framework
Input-output analysis was developed as an analytical framework to describe the inter relationships among the various producers in an economy.  It presents the inter relationships between the industries in an economy in terms of the production and the uses of their products and the imported products in a table format.  In the table, the economy is viewed with each industry listed along the column as a consuming sector and along the rows as a supplying sector. Thus, the I-O table sets out in a systematic manner these transactions which facilitiates economic analyis.
The Input-Output Accounts framework assumes that the inputs used in producing a product are related to the industry output by a linear and fixed production coefficient.  Under this assumption, I-O relations are transformed into the technical relationships and are shown in the I-O coefficients table as column entries.  Thus, each column represents a technique of production.
2.1. Basic Framework
To facilitate input output analysis, three main tables are produced: the transactions table, the table of technical coefficient, and, the table of interdependence coefficient (inverse matrix).
The Transactions Table
The Transactions Table, which is the basic table of the I-O system, records all production flows within the economy during the specified year/period.  To prepare the Transactions Table, the economy is divided into sectors based on the national industry classification, the Philippine Standard Industrial Classification (PSIC).  The output of each industry is distributed along a row of the table while the corresponding column records the inputs of the sector.  Entries in a row show how the output of a certain sector is disposed, either as intermediate sales to other industries or as final deliveries of goods and services for (a) private consumption expenditure, (b) government expenditure. (c) investments, and, (d) exports.  Entries in a column, on the other hand, reflect the value of inputs utilized to produce the output of the sector. These are comprised of the intermediate inputs which include the materials and services purchased from other industries; and the primary inputs which are payments to the factors of production in the form of (a) salaries and wages paid to workers, (b) depreciation allowance (or consumption of capital allowance) for the use of capital, (c) net indirect taxes paid to government, and, (d) operating surplus paid to entrepreneurs.
The Table of Technical Coefficient
The Technical Coefficients Table or direct requirements matrix presents the unit cost structure of production in an economy. This describes the coefficient value of intermediate inputs and primary inputs required in the production of one unit of output of the industry.  The technical coefficients are derived by dividing each element in the intermediate transactions matrix by the total input of each sector as shown in the column total.
The Inverse Matrix
The Inverse Matrix or Leontief Matrix shows the production required, directly and indirectly, per peso of delivery to final demand. The elements in a column correspond not only to the direct requirements but also to the indirect sectoral output requirements needed to meet a unit increase in the final demand for that industry’s output.  To illustrate, the effect of an increase in demand for a certain product does not end with its required direct intermediate inputs.  It generates a long chain of interaction in the production processes since each of the products used as inputs needs to be produced, and will, in turn, require various inputs.  One cycle of input requirements needs another cycle of inputs, which in turn requires another cycle.  The sum of all these chained reactions is reflected in the inverse matrix.
For I-O analysis, the Leontief matrix is very important because it provides the link between production and the final demand.  This can be used to calculate the required output levels of a postulated set of final demands.  The matrix is calculated as the inverse of the technology matrix (I - A), where A is an input coefficient and I is the identity matrix.
2.2. Basic Input-Output Assumptions
Basically two assumptions are considered in constructing the I-O table, namely: homogeneity and proportionality.  By homogeneity, it is assumed that (a) each industry produces a single output (i.e. all the products of the industry are either perfect substitutes for one another or are produced in fixed proportions); (b) each industry has a single input structure (i.e. one which does not vary in response to changes in product mix); and, (c) there is no substitution between the products of different industries. 1/ In effect, the same product or close substitutes could not be contained in two different industries.
On the other hand, proportionality requires that in any productive process all inputs are used in strictly fixed proportions.  Any increase or decrease in inputs will result to a proportional increase or decrease in the level of output.  Hence, a process that is labor intensive cannot be substituted by the capital-intensive alternative.  Regardless of the extent of capacity expansion or reduction, the same fixed ratio is maintained.
3.1. Basic Structure of the I-O Tables
The 2000 Input-Output accounts features the symmetrical I-O transactions table as well as the other analytical tables such as the table of technical coefficients and table of interdependence coefficients (inverse matrix).  The symmetric table has the same number of rows and columns and uses the same classification in both rows and columns.  In compiling I-O 2000, the industries are assumed to take on an industry technology structure, i.e., it is assumed that all products produced by an industry have the same input structure.  To the extent possible, secondary products were transferred to the principal activity where they belong.
Imports are entered in the transactions table as a negative item in the final demand section.  As such, all imports are treated as competitive imports.  Competitive imports treat all imported goods and services as competitive with domestically produced commodities. Each cell entry in the table consists of locally produced and imported commodities.
3.2. Sector Classification
For compiling the 2000 I-O the 1994 Philippine Standard Industrial Classification (PSIC) is used to classify the various industries.  At the most disaggregated level, industries are detailed into 240 industries which highlighted emerging industries such as the semi-conductor industry, business processing outsourcing (i.e., call centers), computer hardware and software development, seaweed farming, among others.
The 240 sectors were aggregated to form smaller tables with 11 sectors and 60 sectors. Although the sectors in the small tables may not be as homogenous as those in the larger tables, these can be useful and more convenient to apply for some analytical studies.
3.3. Valuation
The 2000 I-O transactions table is presented in monetary units and valued at producers’ prices.  Producers’ prices occur when distribution costs (transportation and trade margins) are charged to the using sector; at purchasers’ prices, these costs are charged to the producing industry.  Thus, values at producers’ prices are equal to purchasers’ prices minus the value of trade and transport margin.  If commodity taxes are netted out from the values of producers’ price, the transactions are expressed at basic prices.
3.4. 1993 SNA Recommendations Considered in the 2000 I-O Accounts
Following the current thrust of migrating to the 1993 SNA, some of the recommendations have been considered in the 2000 I-O compilation:
3.4.1. Financial Intermediation Services Indirectly Measured(FISIM)
Financial intermediation refers to the services of banks and non-banks of collecting funds through deposits and making these available in the market in the form of loans.  The main role of banks and non-banks is to channel funds from lenders to borrowers by intermediating between them.
The underlying concept is that banks generate deposits for which a lower interest is paid for its use while a higher interest is charged on loans sourced from these deposits. The difference, which is used to defray expenses and provide an operating surplus, approximates the values of the services of intermediation which is not explicitly recorded; thus, the use of an indirect measure of output referred to as Financial Intermediation Service Indirectly Measured (FISIM).
FISIM is measured as the total property income receivable by financial intermediaries minus their total interest payable, excluding the value of any property income receivable from the investment of their own funds. 2/
Operationally, FISIM is computed as the difference between the interest receivable from borrowers and interest payable to depositors.
FISIM  =  interest income  - interest payment.
The 1993 SNA recommends the allocation of FISIM among different users as intermediate consumption by enterprises, final consumption by households, or as exports to non-residents.
3.4.2. Imputed Insurance Service Charge (IISC)
Similar to the banks, the output of insurance companies is represented by the services it provides in administering/managing payments of claims and benefits in exchange for the receipt of premiums and contributions. Explicit payments charged to policyholders are treated as payment for services in a normal way.  The true value of the services that they provide has to be estimated using receipts, including the income accruing from the investments of their reserves minus payables like claims and additions to technical reserves. This estimate is referred to as the Imputed Insurance Service Charge (IISC).
Hence, in the 1993 SNA the IISC is computed as: Premiums Earned plus Premium Supplement less Claims Paid less Change in Technical Reserves.
3.4.3. Explicit Identification and Treatment of Other Non-Market Production for the Government Sector
The output of Government Services and the General Government Consumption Expenditures (GGCE) now include other non-market goods and services produced by the government and non-profit institutions (NPI) serving government.  These non-market goods and services are provided free or at prices not economically significant.
NPIs’ serving the government (e.g., Nayong Pilipino Foundation) are controlled and mainly financed by the government. On the other hand, departmental industries (i.e. National Printing Office) and local government operation of utilities whose activities are integrated with that of the government form part of the government sector. 
In the previous I-O, goods and services of NPIs’ serving the government were recorded under the appropriate industries based on their primary activity while that of the departmental industries and local government operations of utilities were treated as public industries and classified under the respective industries.
3.4.4. Extension of Gross Fixed Capital Formation to Include Expenditures on Military Structures and Equipment
While before, the capital expenditures of the military were treated as part of the General Government Consumption Expenditures (GGCE), in the present I-O, equipment and structures of the military which are also used for civilian purposes are now included as part of Gross Fixed Capital formation.
3.4.5. Valuation of Export/Import
In the previous I-O, merchandise imports were valued at cost, insurance, freight (c.i.f.) while merchandise exports were valued at free on board (f.o.b).  However, following the 1993 SNA, both exports/imports of goods are now valued at f.o.b.  Insurance and freight of imports are now recorded under imports of non-factor services.
3.4.6. Treatment of Monetization/Demonetization of Gold
The present compilation has excluded monetization/demonetization of gold where before it was recorded as part of merchandise exports/imports.  In the 1993 SNA, it is treated as other changes in asset accounts under the accumulation accounts.
3.4.7. Extension of Capital Formation to include Valuables
The 1993 SNA has added another item in the capital formation termed as valuables, which are acquired and held as store of value and not used primarily for production or consumption.  In the 2000 I-O, certain valuables such as gold, jewelry, and precious stones have been added under changes in stocks.
3.4.8. Extension of Government Inventories to include all Goods held by Government in Inventories
The 1994 I-O table followed the 1968 SNA which includes as part of government inventories only the strategic goods, such as grains and other materials of national importance.  Under the present I-O compilation, supplies and materials, petroleum and others held by the government are now included as part of its inventories.
1/ Australian Bureau of Statistics, 2000.  Australian System of National Accounts: Concepts, Sources and Methods.  Paragraph 9.77, page 115. Canberra, Australia.
2/ Commission of the European Communities, International Monetary Fund, Organization for Economic Cooperation and Development, United Nations, and World Bank. 1993.  System of National Accounts 1993.  Paragraph 6.125, page 139.  Brussels/Luxembourg, New York, Paris, Washington, D.C.

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