New Zealand's Production Structure: An International Comparison

Claus, Iris; Li, Kathy Working Paper New Zealand's Production Structure: An International Comparison New Zealand Treasury Working Paper, No. 03/16 Provided in Cooperation with: The Treasury, New Zealand Government Suggested Citation: Claus, Iris; Li, Kathy (2003) : New Zealand's Production Structure: An International Comparison, New Zealand Treasury Working Paper, No. 03/16, New Zealand Government, The Treasury, Wellington This Version is available at: https://hdl.handle.net/10419/205521 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ New Zealand’s Production Structure: An International Comparison Iris Claus and Kathy Li N EW Z EALAND T REASURY W ORKING P APER 03/16 S EPTEMBER 2003 NZ TREASURY WORKING PAPER 03/16 New Zealand’s Production Structure: An International Comparison MONTH / YEAR September 2003 AUTHORS Iris Claus The Treasury 1 The Terrace PO Box 3724 Wellington NEW ZEALAND Email Telephone [email protected] 64-4-471 5221 Kathy Li University of Canterbury Christchurch NEW ZEALAND Email Telephone [email protected] 64-3-3585189 ACKNOWLEDGEMENTS We would like to thank John Creedy, Khoon Goh and Dean Hyslop for useful suggestions. Special thanks are due to Barry Voice at Statistics New Zealand. Thanks are also due to Jenny Fenwick and Claire Gardiner for their assistance with the data and David Law and Shaohong Xie for help with the graphs and tables. NZ TREASURY New Zealand Treasury PO Box 3724 Wellington 6008 NEW ZEALAND Email Telephone Website [email protected] 64-4-472 2733 www.treasury.govt.nz DISCLAIMER The views expressed in this Working Paper are those of the author(s) and do not necessarily reflect the views of the New Zealand Treasury. The paper is presented not as policy, but with a view to inform and stimulate wider debate. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON i Abstract The purpose of this paper is to compare New Zealand’s production structure in the mid1990s to that in other OECD countries using input output analysis. Comparable inter industry transactions tables to the New Zealand data are available for Australia, Belgium, Denmark, Finland, Germany, Norway and the United Kingdom. The composition of total supply and value added is examined across countries. Backward and forward linkages, indices of industry interconnectedness, a value added production multiplier, a cumulated primary input coefficient for compensation of employees and a measure of import content of final demand output are calculated, taking into account direct and indirect transactions. New Zealand’s industrial structure is broadly similar to that in other OECD countries. Some differences arise as certain industries are more important in some countries. New Zealand’s exports appear to be more diversified and have a large value added content. Moreover, the return to capital, as measured by the share of gross operating surplus in value added, is high. JEL CLASSIFICATION C67 (input output models) L16 (macroeconomic industrial structure) O57 (comparative studies of countries) KEYWORDS Input output models; industry importance; production structure; inter industry dependencies; country comparisons WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON ii Table of Contents Abstract ...............................................................................................................................i Table of Contents ..............................................................................................................ii List of Figures....................................................................................................................ii List of Tables.....................................................................................................................iii 1 Introduction ..............................................................................................................1 2 Input output tables ...................................................................................................2 3 Composition of total supply and value added.......................................................5 4 Inter industry linkages .............................................................................................7 4.1 Backward and forward linkages......................................................................................8 4.2 Industry interconnectedness.........................................................................................18 4.3 Value added index ........................................................................................................31 4.4 Value added production multiplier ................................................................................32 4.5 Cumulated primary input coefficient for compensation of employees..........................39 4.6 Import content of exports, gross fixed capital formation and consumption ..................42 5 Summary and conclusions....................................................................................44 References .......................................................................................................................46 Appendix ..........................................................................................................................47 List of Figures Figure 1: Composition of total supply (in percent) .........................................................................6 Figure 2: Composition of value added (in percent)........................................................................7 Figure 3: Backward linkages (final demand weighted) ................................................................10 Figure 4: Forward linkages (final demand weighted)...................................................................12 Figure 5: Backward linkages (export weighted)...........................................................................14 Figure 6: Forward linkages (export weighted) .............................................................................16 Figure 7: Backward concentration index......................................................................................19 Figure 8: Forward concentration index ........................................................................................21 Figure 9: Row entropy (final demand weighted)..........................................................................24 Figure 10: Column entropy (final demand weighted).....................................................................26 Figure 11: Entropy for total sales flows..........................................................................................29 Figure 12: Value added index ........................................................................................................33 Figure 13: Value added production multiplier (final demand weighted) ........................................35 Figure 14: Value added production multiplier (export weighted) ...................................................37 Figure 15: Cumulated primary input coefficients of industries for compensation of employees.....................................................................................................................40 Figure 16: Cumulated primary input coefficient for exports ...........................................................43 Figure 17: Cumulated primary input coefficients for consumption.................................................43 Figure 18: Cumulated primary input coefficients for gross fixed capital formation........................44 WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON iii List of Tables Table 1: New Zealand inter industry transactions 1995-96 (dollar millions).................................3 Table 2: Summary of data and sources........................................................................................5 Table A1: Categories of final demand...........................................................................................47 Table A2: Categories of value added............................................................................................49 Table A3: Industry categories .......................................................................................................50 Table A4: Categories of primary inputs.........................................................................................60 WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 1 New Zealand’s Production Structure: An International Comparison 1 Introduction A recent comparison of market sector multifactor productivity in Australia and New Zealand showed similar rates of growth in both countries over the period 1988 to 2002. But the rate of physical capital accumulation has been lower in New Zealand since 1993 and has led to a lower capital-labour ratio (see Black, Guy and McLennan, 2003). One possible explanation for the lower capital-labour ratio in New Zealand may be a different industrial structure. The purpose of this paper is to examine how New Zealand’s production structure compares to that in other OECD countries. The methodology used is input output analysis. Input output tables contain detailed information about the process of production, the use of goods and services (products) and the income generated in that production (United Nations, 1993). They can be used to assess the composition of industries’ total supply and value added, the degree of specialisation of industries and the contribution of primary inputs in the production of the economy. The main findings of this paper can be summarised as follows. New Zealand’s industrial structure is broadly similar to that in other OECD countries although some differences arise as certain industries are more important in some countries. New Zealand’s exports appear to be more diversified and have a large value added content. Moreover, the return to capital, as measured by the share of gross operating surplus in value added, is high. The remainder of the paper proceeds as follows. Section 2 provides a brief description of input output tables and data available. The composition of total supply and value added is discussed in section 3, while section 4 investigates inter industry linkages. Six measures of inter industry linkages are used: (i) backward and forward linkages, (ii) indices of industry interconnectedness, (iii) a value added index, (iv) a value added production multiplier, (v) a cumulated primary input coefficient for compensation of employees and (vi) a measure of import content of final demand output. Section 5 summarises and concludes. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 2 2 Input output tables 1 Inter industry tables provide a summary of the industrial structure of an economy for a given year. They contain information on the values of flows of goods and services between industries and sectors of the economy. All commodity and industry flows in the input output tables are recorded in nominal terms at basic prices. The basic price of a good or service is the amount receivable by the producer minus any tax payable and plus any subsidy receivable. The producer price is the amount receivable by the producer minus any deductible goods and services tax (GST) or value added tax (VAT) invoiced to the purchaser. The purchaser’s price is the amount paid by the purchaser, excluding any deductible GST or VAT in order to take delivery of a unit of a good or service. In the case of goods, the purchaser’s price includes any trade margins and transport charges paid by the purchaser. Both basic and producer prices exclude transport charges invoiced separately by the producer. The focus of input output analysis tends to be on inter industry transactions or the industry by industry flow matrix. Table 1 provides an example of such a matrix.2 It shows the New Zealand inter industry transaction table for 1995-96 at the 49-industry level. The rows of the inter industry transactions table describe the distribution of an industry’s output throughout the economy, while the columns describe the composition of inputs required by a particular industry to produce its output. Rows 1 to 49 record how much each industry sells to other industries (columns 1 to 49) and final demand output (columns 51 to 57), where final demand (column 58) consists of household consumption (column 51), private non-profit final consumption (column 52), central and local government final consumption (columns 53 and 54), gross fixed capital formation (column 55), change in inventories (column 56) and exports (column 57). Column 50, labelled “total industry”, is the sum of intermediate products supplied by a particular industry.3 The column labelled “total economy” (column 59) is the sum of total sales of intermediate and final demand products. Columns 1 to 49 show how much each industry purchases from other industries (rows 1 to 49) and other inputs to production (rows 50 to 56). Compensation of employees (row 52), operating surplus (row 53), consumption of fixed capital (54), other taxes on production (row 55) and subsidies (row 56) add up to total value added at basic prices (row 59). Entries along the principal diagonal (row 1, column 1; row 2, column 2; … row 49, column 49) of the intermediate input flow matrix (grey shaded area) show the amount of intra industry trade. Table 1 also shows the link between total use in basic prices (row 57) and purchaser’s prices (row 58). From Table 1 gross domestic product (GDP) at market prices can be calculated. The sum of total use in purchaser’s prices of final demand ($M 120,388) less total economy imports ($M 26,641) is equal to GDP ($M 93,747). Alternatively, GDP can be calculated as total industry value added in basic prices ($M 84,120) plus total economy taxes on products ($M 9,626). 1 For a detailed description of input output tables see United Nations (1993). For an excellent summary of input output methodology see section 3.2 and appendix 4 in Statistics New Zealand (2003). 2 For more details and an introduction to inter industry transactions tables see Dixon (1996). 3 The total value of intermediate output is equal to the total value of intermediate inputs; that is, aggregate intermediate supply is equal to aggregate intermediate demand. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 3 Table 1: New Zealand inter industry transactions 1995-96 (dollar millions) 1 2 48 49 50 51 52 53 54 55 56 57 58 59 Horticulture and fruit growing Livestock and cropping farming … Cultural and recreational services Personal and other community services Total Industry Households Private nonprofit institutions serving households Central Government Local Government Gross fixed capital formation Change in inventories Exports Final Demand Total economy (columns 1 to 49) (columns 51 to 57) (columns 50 + 58) 1 Horticulture and fruit growing 21 43 1 573 198 3 11 685 897 1,469 2 Livestock and cropping farming 29 432 2 3,408 41 7 -150 315 213 3,621 … 48 Cultural and recreational services 17 33 314 17 1,458 1,068 404 143 6 1 425 2,048 3,505 49 Personal and other community services 1 2 20 104 761 772 251 35 13 87 1,158 1,919 50 Imports 78 242 419 110 15,468 5,841 211 4,503 116 503 11,174 26,641 51 Taxes on products 17 37 32 19 2,346 5,867 298 768 348 7,280 9,626 52 Compensation of employees 321 315 761 650 39,450 0 39,450 53 Operating surplus 210 402 494 250 29,621 0 29,621 54 Consumption of fixed capital 132 494 212 93 12,407 0 12,407 55 Other taxes on production 30 152 72 21 2,957 02,957 56 Subsidies -7 -6 -93 -1 -315 0-315 57 Total use in basic prices (rows 1 to 49 + 50) 766 2,228 2,027 888 101,054 48,553 1,122 13,754 2,371 19,122 1,182 27,002 113,107 214,161 58 Total use in purchasers' prices (rows 57 + 51) 783 2,265 2,059 907 103,400 54,420 1,122 14,052 2,371 19,891 1,182 27,350 120,388 223,788 59 Total value added (rows 52 to 56) 687 1,356 1,447 1,012 84,120 0 84,120 60 Total supply in basic prices (rows 1 to 56) 1,469 3,621 3,505 1,919 187,520 0 187,520 Industries Primary inputs Industries Categories of final demand WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 10 Figure 3: Backward linkages (final demand weighted)15 15 NPISH in the United Kingdom figures stands for non-profit institutions serving households. Be lgium 0 1234 Co nst ruct ion Public administ rat ion Food, beverages, tobacco Trade, rest aurant s, hotels Chemical, petrol, rubber etc Dwellings, property and business services Transp ort and st orage M achinery and equipment Textile, ap parel, leat her Education, healt h, social services et c Electricity, gas, and water Wood and paper prod ucts, printing Finance Agriculture, forestry, fishing Communicat ion services M ining Australia 0 0.5 1 1.5 2 2.5 3 Co nst ruct ion Public administ rat ion Dwellings, property and business services Transport and st orage Trade, restaurants, hotels M ining Food, beverages, tobacco Educat ion, health, social services etc Finance Chemical, pet rol, rubber et c M achinery and equip ment Agriculture, forestry, fishing Elect ricity, g as, and wat er Textile, apparel, leat her Communication services Wood and paper products, printing De n m ar k 0 0.5 1 1.5 2 2.5 3 3.5 Food, beverages, tobacco Co nst ruct ion Public administ rat ion M achinery and equipment Trade, rest aurant s, hotels Educat ion, health, social services etc Dwellings, pro pert y and business services Elect ricity, gas, and wat er Finance Transp ort and st orage Text ile, apparel, leather Wood and paper products, printing Chemical, pet rol, rubb er etc Communicat ion services Agriculture, forestry, fishing M ining Finland 0 0.5 1 1.5 2 2.5 Construction Trade, rest aurant s, hot els Public administration Transport and st orag e Educat ion, health, social services et c Wood and p aper product s, printing Dwellings, property and business services Food, beverages, tobacco M achinery and equipment M ining Chemical, petrol, rubber etc Elect ricity, gas, and wat er Finance Text ile, app arel, leather Communicat ion services Agriculture, forestry, fishing WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 11 United Kingdom 0 0.5 1 1.5 2 2.5 3 Manufacturing Wholesale and retail trade Financial intermediation Construction General government: Education, health and social work General government: Public administration Agric ulture Transport and communication Other services General government: Other services Electricity, gas, and water Mining and quarrying NPISH: Financial intermediation NPISH: Other services Education, health and social work Public administration NPISH: Education, health and social work Germ any 0123456 Public administ rat ion Co nst ruct ion Trade, restaurants, hotels Food, beverages, tobacco Dwellings, property and business services M achinery and equip ment Finance Chemical, pet rol, rubber et c Educat ion, health, social services etc Electricy, gas, and water Transport and st orage Wood and paper products, printing M ining Textile, apparel, leat her Agriculture, forestry, fishing Communication services New Zealand 0 0.5 1 1.5 2 2.5 3 3.5 Construction Trade, rest aurant s, hot els Public administration Food, beverages, tobacco Dwellings, property and business services Educat ion, health, social services et c Text ile, app arel, leather M achinery and equipment Transport and st orag e Wood and p aper products, printing Communicat ion services Chemical, petrol, rubber et c M ining Agriculture, forestry, fishing Finance Elect ricity, gas, and wat er Nor w ay 0 0.5 1 1.5 2 2.5 M ining Transpo rt , communicat ion, f inance Education, healt h, social services et c Construction Chemical, petrol, rubber etc Food, beverages, tobacco M achinery and eq uipment Dwellings, property and business services Agriculture, forestry, fishing Trade, rest aurant s, hot els Wood and paper products, printing Textile, apparel, leather Public administration Electricity, gas, and water WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 12 Figure 4: Forward linkages (final demand weighted) Belgium 02468 Construction Food, beverages, tobacco Chemical, petrol, rubber etc Public administration Trade, rest aurant s, hot els Dwellings, property and business services M achinery and equipment Transport and st orag e Educat ion, health, social services et c Text ile, app arel, leather Communicat ion services Wood and p aper product s, printing Elect ricity, gas, and wat er Finance Agriculture, forestry, fishing M ining Australia 012345 Transp ort and st orage Dwellings, property and business services Co nst ruct ion M ining Finance M achinery and equipment Public administ rat ion Educat ion, health, social services et c Elect ricity, g as, and wat er Agriculture, forestry, fishing Communication services M achinery and equipment Chemical, pet rol, rubber et c Wood and paper products, printing Textile, apparel, leat her De n m ar k 01234567 Co nst ruct ion Food, beverages, tobacco Public administ rat ion Dwellings, property and business services Trade, restaurants, hotels Elect ricity, g as, and wat er M achinery and equipment Educat ion, health, social services etc Transp ort and st orage Finance Communication services Chemical, pet rol, rubber et c Wood and paper products, printing Textile, apparel, leat her Agriculture, forestry, fishing M ining Finland 0123 45 Transport and st orag e Trade, rest aurant s, hot els Construction Public administration Wood and p aper product s, printing Educat ion, health, social services et c Dwellings, property and business services M achinery and equipment Food, beverages, tobacco Chemical, petrol, rubber et c Elect ricity, gas, and wat er Finance Agriculture, forestry, fishing Text ile, app arel, leather Communicat ion services M ining WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 13 Germ any 0246810 Co nst ruct ion Public administ rat ion Dwellings, property and business services Trade, restaurants, hotels Food, beverages, tobacco M achinery and equipment Chemical, pet rol, rubber et c Communication services Educat ion, health, social services etc Finance Transp ort and st orage Electricy, gas, and water Wood and paper products, printing Textile, apparel, leat her Agriculture, forestry, fishing M ining New Zealand 0246810 Co nst ruct ion Trade, restaurants, hotels Dwellings, property and business services Food, beverages, tobacco Public administ rat ion Communication services Educat ion, health, social services etc Transport and st orage M achinery and equip ment Textile, apparel, leat her Wood and paper products, printing Finance Chemical, pet rol, rubber et c Elect ricity, g as, and wat er Agriculture, forestry, fishing M ining Nor w ay 012345 Transport , communicat ion, f inance M ining Educat ion, health, social services etc Co nst ruct ion Trade, restaurants, hotels Dwellings, property and business services M achinery and equip ment Food, beverages, tobacco Chemical, pet rol, rubber et c Agriculture, forestry, fishing Public administ rat ion Wood and paper products, printing Elect ricity, g as, and wat er Textile, apparel, leat her United Kingdom 01234567 Manufacturing Financial intermediation Wholesale and retail trade Construction Transport and communication General government: Education, health and social work General government: Public administration Other services Education, health and social work Electricity, gas, and water Mining and quarrying NPISH: Education, health and social work Agric ulture General government: Other services NPISH: Other services Public administration NPISH: Financial intermediation WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 14 Figure 5: Backward linkages (export weighted) Finland 0123456 Wood and paper products, printing M achinery and equipment Transp ort and st orage Chemical, pet rol, rubber et c Food, beverages, tobacco M ining Textile, apparel, leat her Dwellings, property and business services Elect ricity, g as, and wat er Trade, restaurants, hotels Co nst ruct ion Communication services Agriculture, forestry, fishing Finance Public administ rat ion Educat ion, health, social services etc De n m ar k 02468 Food, beverages, tobacco M achinery and equipment Transp ort and st orag e Chemical, pet rol, rubber et c Text ile, apparel, leather Wood and paper products, printing Const ruct ion Trade, rest aurant s, hot els Agriculture, forestry, fishing M ining Elect ricity, gas, and wat er Communicat ion services Finance Dwellings, property and business services Public administ rat io n Educat ion, health, social services etc Belgium 0123456 Chemical, pet rol, rubber et c Food, beverages, tobacco Trade, restaurants, hotels M achinery and equip ment Textile, apparel, leat her Transport and st orage Wood and paper products, printing Co nst ruct ion Dwellings, property and business services Agriculture, forestry, fishing Elect ricity, g as, and wat er Finance Educat ion, health, social services etc Communication services M ining Public administ rat ion Australia 012345 M ining Transport and st orage Food, beverages, tobacco Chemical, pet rol, rubber et c Agriculture, forestry, fishing M achinery and equip ment Textile, apparel, leat her Trade, restaurants, hotels Elect ricity, g as, and wat er Co nst ruct ion Wood and paper products, printing Communication services Dwellings, property and business services Finance Educat ion, health, social services etc Public administ rat ion WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 15 United Kingdom 012345 Manufacturing Wholesale and retail trade Agric ulture Financial intermediation Construction Transport and communication General government: Other services Mining and quarrying Other services Public administration Electricity, gas, and water NPISH: Financial intermediation General government: Public administration General government: Education, health and social work NPISH: Other services Education, health, and social work NPISH: Education, health and social work Nor w ay 0123456 M ining Transport , communicat ion, f inance Chemical, pet rol, rubber et c M achinery and equip ment Food, beverages, tobacco Wood and paper products, printing Agriculture, forestry, fishing Co nst ruct ion Educat ion, health, social services etc Textile, apparel, leat her Dwellings, property and business services Trade, restaurants, hotels Public administ rat ion Elect ricity, g as, and wat er New Zealand 0 1234 Food, beverages, tobacco Trade, restaurants, hotels Textile, apparel, leat her Transport and st orage Wood and paper products, printing M achinery and equip ment Chemical, pet rol, rubber et c Agriculture, forestry, fishing Co nst ruct ion M ining Educat ion, health, social services etc Communication services Dwellings, property and business services Public administ rat ion Elect ricity, g as, and wat er Finance Germ any 01234567 M achinery and equip ment Chemical, pet rol, rubber et c Food, beverages, tobacco Textile, apparel, leat her Trade, restaurants, hotels Wood and paper products, printing Transport and st orage M ining Agriculture, forestry, fishing Co nst ruct ion Public administ rat ion Dwellings, property and business services Electricy, gas, and water Finance Communication services Educat ion, health, social services etc WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 16 Figure 6: Forward linkages (export weighted) Finland 024681012 Wood and paper product s, print ing Transp ort and st orage M achinery and equipment Chemical, pet rol, rubber et c Dwellings, property and business services Food, beverages, tobacco Textile, apparel, leat her Trade, restaurants, hotels Agriculture, forestry, fishing Communication services Finance M ining Elect ricity, g as, and wat er Educat ion, health, social services et c Public administ rat ion Co nst ruct ion De n m ar k 024681012 Food, beverages, tobacco M achinery and equip ment Transport and st orage Chemical, pet rol, rubber et c Trade, restaurants, hotels Textile, apparel, leat her Wood and paper products, printing Elect ricity, g as, and wat er M ining Agriculture, forestry, fishing Dwellings, property and business services Communication services Public administ rat ion Finance Educat ion, health, social services etc Co nst ruct ion Belgium 02468101214 Chemical, pet ro l, rubb er etc Food, beverages, tobacco Trade, rest aurant s, hot els M achinery and equipment Dwellings, property and business services Transport and st orag e Text ile, app arel, leather Wood and p aper product s, printing M ining Communicat ion services Agriculture, forestry, fishing Construction Finance Elect ricity, gas, and wat er Educat ion, health, social services et c Public administration Australia 0246810 M ining Transport and st orage Agriculture, forestry, fishing Dwellings, property and business services Trade, restaurants, hotels Chemical, pet rol, rubber et c Food, beverages, tobacco M achinery and equip ment Finance Communication services Textile, apparel, leat her Wood and paper products, printing Educat ion, health, social services etc Public administ rat ion Co nst ruct ion Elect ricity, g as, and wat er WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 17 United Kingdom 02468101214 M anufact uring Financial int ermediat ion Wholesale and ret ail trade Transp ort and communicat ion M ining and quarrying Other services Agriculture Educat ion, health and social work Public administ rat ion Construct ion Elect ricity, g as, and wat er General government : Public administ rat ion NPISH: Financial intermediation General government: Educat ion, healt h and social work General government : Ot her services NPISH: Educat ion, health and social work NPISH: Other services Norway 02468 Mining Transport, communication, finance Chemical, petrol, rubber etc Machinery and equipment Education, health, social services etc Food, beverages, tobacco Dwellings, property and business services Agric ulture, forestry, fishing Wood and paper products, printing Trade, restaurants, hotels Textile, apparel, leather Electricity, gas, and water Public administration Construction New Zealand 024681012 Trade, rest aurant s, hot els Food, beverages, tobacco Transport and st orag e Text ile, app arel, leather Wood and p aper product s, printing Chemical, pet rol, rubber etc M achinery and equipment Communicat ion services Dwellings, property and services Agriculture, forestry, fishing M ining Educat ion, health, social services et c Construction Finance Public administration Elect ricity, gas, and wat er Germ any 0246 810 Chemical, pet ro l, rubb er etc M achinery and equipment Trade, rest aurant s, hot els Finance Dwellings, property and business services Transport and st orag e Wood and paper products, printing Text ile, app arel, leather Communicat ion services Agriculture, forestry, Finance Public administration Electricy, gas, and water Construction Educat ion, health, social services et c M ining WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 18 Figure 4 shows that finance has more forward than backward linkages in New Zealand. The relative importance of finance in New Zealand in terms of forward linkages is similar to that in Belgium, Finland and Germany, but lower than in Australia, Denmark, Norway and the United Kingdom. Alternatively, exports can be used as a weighting factor. Backward and forward linkages then show the effect on industries of a unit increase in export demand. The results of weighting backward and forward linkages by exports are reported in Figures 5 and 6. New Zealand’s most important exporting industries in terms of backward (Figure 5) and forward (Figure 6) linkages are food, beverages, tobacco; trade, restaurants, hotels; transport and storage; and textile, apparel, leather. Transport and storage is also important in Australia, Denmark and Finland. The effects of a unit increase in export demand on the transport and storage industry in Norway and the United Kingdom are more difficult to assess because of the industry aggregation in these countries. Trade, restaurants, hotels appear to be more important for exporting in New Zealand, and to some extent in the United Kingdom, than in the other countries. 4.2 Industry interconnectedness Indices of industry interconnectedness focus on the number of direct and indirect transactions between industries and provide an indication of the degree of outsourcing and diversification in an economy. More purchases of intermediate products by industries indicate an increase in outsourcing, while a rise in the number of sales to other industries suggests an increase in diversification; that is, an expansion of an existing industry into other commodities or markets.16 Following Soofi (1992), two measures of industry interconnectedness are calculated: (i) a measure of concentration and (ii) entropy as a measure of variation.17 The concentration measure is calculated from the unweighted total requirement matrix and thus focuses on the intermediate sector. The entropy based measure of dispersion is more descriptive of the characteristics of the economy as a whole as it takes into account final demand sales. The backward concentration index is defined as 2/1 N 1i 2 ij,j.ijj. )c(1N)b(G                −= ∑ = (9) and the forward index as 2/1 N 1j 2 ij.,iij.i )c(1N)b(G                −= ∑ = (10) 16 Diversification may be related or unrelated. Related diversification occurs when an industry (firm) expands into similar product lines. Unrelated diversification takes place when the products are very different from each other, for example a food processing firm manufacturing leather footwear as well. Diversification may arise for a variety of reasons: to take advantage of complementarities in production and existing technology; to exploit economies of scope; to reduce exposure to risk; to stabilize earnings and overcome cyclical business conditions; etc. See the OECD’s Glossary of industrial organization economics and competition law www.oecd.org/pdf/M00007000/M00007651.pdf. 17 Entropy is explained further below. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 19 Figure 7: Backward concentration index Australia 0123456 Food, beverages, tobacco Co nst ruct ion Textile, apparel, leat her M achinery and equipment Chemical, pet rol, rubber et c Trade, restaurants, hotels Agriculture, forestry, fishing Public administ rat ion Wood and paper products, printing Transp ort and st orage Communication services M ining Elect ricity, g as, and wat er Educat ion, health, social services et c Dwellings, property and business services Finance Belgium 02468 Transport and st orag e Trade, rest aurant s, hot els Construction Food, beverages, tobacco Finance Elect ricity, gas, and wat er Chemical, petrol, rubber et c Dwellings, property and business services Wood and p aper printing Text ile, app arel, leather Public administration Communicat ion services Educat ion, health, social services et c Agriculture, forestry, fishing M achinery and equipment M ining De n m ar k 01234567 Co nst ruct ion Food, beverages, tobacco M achinery and equip ment Trade, restaurants, hotels Agriculture, forestry, fishing Chemical, pet rol, rubber et c Wood and paper products, printing Finance Dwellings, property and business services Textile, apparel, leat her Transport and st orage Communication services Public administ rat ion M ining Educat ion, health, social services etc Elect ricity, g as, and wat er Finland 0123456 Food, beverages, tobacco M ining Co nst ruct ion Trade, restaurants, hotels Wood and paper products, printing Dwellings, property and business services M achinery and equip ment Chemical, pet rol, rubber et c Transport and st orage Textile, apparel, leat her Communication services Public administ rat ion Finance Educat ion, health, social services etc Elect ricity, g as, and wat er Agriculture, forestry, fishing WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 26 Figure 10: Column entropy (final demand weighted) Finland 0 0.5 1 1.5 2 2.5 3 Transport and st orag e Trade, rest aurant s, hot els Construction Wood and p aper product s, printing Public administration Dwellings, property and business services Educat ion, health, social services et c M achinery and equipment Elect ricity, gas, and wat er Food, beverages, tobacco Chemical, petrol, rubber et c Communicat ion services Finance Agriculture, forestry, fishing Text ile, app arel, leather M ining De n m ar k 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Co nst ruct ion Public administ rat ion Food, beverages, tobacco Dwellings, property and business services Elect ricity, g as, and wat er Communication services Trade, restaurants, hotels Transport and st orage M achinery and equip ment Wood and paper products, printing Chemical, pet rol, rubber et c Finance Educat ion, health, social services etc Textile, apparel, leat her M ining Agriculture, forestry, fishing Belgium 012345 Co nst ruct ion Trade, restaurants, hotels Chemical, pet rol, rubber et c Dwellings, property and business services Food, beverages, tobacco Transp ort and st orage Communication services Elect ricity, g as, and wat er Wood and paper product s, print ing Finance Textile, apparel, leat her M achinery and equipment Agriculture, forestry, fishing Educat ion, health, social services etc M ining Public administ rat ion Australia 01234 Transport and st orage Dwellings, property and business services M ining Finance Trade, restaurants, hotels Elect ricity, g as, and wat er Public administ rat ion Communication services Co nst ruct ion Agriculture, forestry, fishing M achinery and equip ment Chemical, pet rol, rubber et c Food, beverages, tobacco Educat ion, health, social services etc Wood and paper products, printing Textile, apparel, leat her WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 27 United Kingdom 0 0.5 1 1.5 2 2.5 3 M anufact uring Financial int ermediat ion Wholesale and ret ail trade Transp ort and communicat ion Construct ion Other services Educat ion, health and social work Elect ricity, g as, and wat er M ining and quarrying NPISH: Educat ion, health and social work General government : Public administ rat ion General government: Educat ion, healt h and social work Agriculture NPISH: Ot her services General government : Ot her services Public administ rat ion NPISH: Financial intermediation Nor w ay 0 0.5 1 1.5 2 2.5 3 Transport , communicat ion, f inance Trade, restaurants, hotels M ining Educat ion, health, social services etc Co nst ruct ion M achinery and equip ment Dwellings, property and business services Chemical, pet rol, rubber et c Food, beverages, tobacco Agriculture, forestry, fishing Wood and paper products, printing Elect ricity, g as, and wat er Public administ rat ion Textile, apparel, leat her New Zealand 01234567 Trade, restaurants, hotels Co nst ruct ion Communication services Dwellings, property and business services Transport and st orage M achinery and equip ment Food, beverages, tobacco Finance Educat ion, health, social services etc Wood and paper products, printing Chemical, pet rol, rubber et c Textile, apparel, leat her Public administ rat ion Elect ricity, g as, and wat er M ining Agriculture, forestry, fishing Germ any 012345 67 Construction Public administration Dwellings, property and business services Trade, rest aurant s, hot els Communicat ion services Chemical, petrol, rubber et c Electricy, gas, and water Food, beverages, tobacco Transport and st orag e M achinery and equipment Finance Wood and paper products, printing Educat ion, health, social services et c Text ile, app arel, leather Agriculture, forestry, fishing M ining WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 28 ∑ =        = N 1j ij,j. ij,j. w j. d 1 logd)b(H ij (12) where w .i w ij N 1j w ij w ij ij.,i b b b b d== ∑ = and w j. w ij N 1i w ij w ij ij,j. b b b b d== ∑ = for all i and j. Note that         ij.., ij.., d 1 logd is generally replaced by 0 d 1 logdlim ij.., ij.., 0d ij.., =                 → for 0dij.., = (Theil 1971). The row and column entropy are conceptually similar to the backward and forward concentration index, but take into account final demand. Figures 9 and 10 plot the row and column entropy measures. Taking into account final demand sales has the effect of raising the relative importance of wood and paper products, printing; and agriculture, forestry, fishing in New Zealand in terms of backward industry connectedness (Figure 9). The relative importance of agriculture, forestry, fishing also increases in Australia. Moreover, a comparison of the row and column entropy (Figures 9 and 10) with the backward and forward concentration index (Figures 7 and 8) shows that taking into account final demand lowers the relative importance of finance in New Zealand, Belgium and Finland. This suggests that the finance industry in New Zealand, Belgium and Finland probably offers similar products to that in other countries and provides services across all industries in the economy, but the amount of credit channelled through the financial system for final demand is lower. The measures discussed so far rank industries by sales and purchases with other industries. To take into account inter industry transactions as well as deliveries to final demand, an extended version of the entropy measure can be used. The entropy of total sales flows is calculated by normalising iNiN22i11ii fxaxaxax ++++= K (13) and then dividing both sides of (13) by i x and applying the following entropy formula to the proportions, w ij af , ∑ =        = N 1j w ij w ij w ijj. af 1 logaf)af(H (14) The entropy for total sales flows is plotted in Figure 11. When taking into account intermediate and final sales, communication services; finance; chemical, petrol, rubber etc; and transport and storage have the largest entropy in New Zealand. That is, a large number of households and exporters, for example, will buy additional output from these industries following an increase in these industries’ output. Moreover, other industries will also buy additional output from these industries in the form of intermediate products. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 29 Figure 11: Entropy for total sales flows21 21 The row entropy for total sales flows could not be calculated for mining in Finland. Finland 0 0.5 1 1.5 Elect ricity, gas, and wat er Communicat ion services Transport and st orag e Chemical, pet ro l, rubb er etc Wood and p aper product s, printing Dwellings, property and business services Food, beverages, tobacco Trade, rest aurant s, hot els Finance Construction Text ile, app arel, leather M achinery and equipment Agriculture, forestry, fishing Educat ion, health, social services et c Public administration De n m ar k 0 0.5 1 1.5 Communicat ion services Dwellings, property and business services Elect ricity, gas, and wat er Wood and paper products, printing Transport and st orag e Chemical, pet ro l, rubb er etc M ining Construction Agriculture, forestry, fishing Finance M achinery and equipment Trade, rest aurant s, hot els Text ile, app arel, leather Educat ion, health, social services et c Food, beverages, tobacco Public administration Belgium 0 0.5 1 1.5 Elect ricity, gas, and wat er Communicat ion services Transport and st orag e Wood and p aper product s, printing Dwellings, property and services Chemical, pet ro l, rubb er etc etc Finance Trade, rest aurant s, hot els Construction Text ile, app arel, leather Agriculture, forestry, fishing Educat ion, health, social services et c M ining M achinery and equipment Food, beverages, tobacco Public administration Australia 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Communication services Elect ricity, g as, and wat er Transport and st orage Wood and paper products, printing Chemical, pet rol, rubber et c Finance M achinery and equip ment Trade, restaurants, hotels M ining Agriculture, forestry, fishing Textile, apparel, leat her Dwellings, property and business services Food, beverages, tobacco Public administ rat ion Educat ion, health, social services etc Co nst ruct ion WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 30 United Kingdom 0 0.2 0.4 0.6 0.8 1 Transport and communication Financial intermediation Electricity, gas, and water Mining and quarrying Manufacturing Education, health and social work Other services Construction Agric ulture Public administration Wholesale and retail trade General government: Public administration General government: Education, health and social work General government: Other services NPISH: Financial intermediation NPISH: Education, health and social work NPISH: Other services Nor w ay 0 0.2 0.4 0.6 0.8 1 1.2 Wood and paper products, printing Textile, apparel, leat her Elect ricity, g as, and wat er Transport , communicat ion, f inance M achinery and equip ment Co nst ruct ion Chemical, pet rol, rubber et c Dwellings, property and business services Agriculture, forestry, fishing Public administ rat ion Trade, restaurants, hotels Food, beverages, tobacco Educat ion, health, social services etc M ining New Zealand 0 0.5 1 1.5 Communicat ion services Finance Chemical, pet ro l, rubb er etc Transport and st orag e M ining Wood and p aper product s, printing Dwellings, property and business services Elect ricity, gas, and wat er M achinery and equipment Agriculture, forestry, fishing Text ile, app arel, leather Trade, rest aurant s, hot els Construction Educat ion, health, social services etc Food, beverages, tobacco Public administration Germ any 0 0.5 1 1.5 Electricy, gas, and water Communicat ion services Dwellings, property and business services Wood and paper products, printing Chemical, pet ro l, rubb er etc Transport and st orag e Trade, rest aurant s, hot els Finance M achinery and equipment Educat ion, health, social services et c M ining Agriculture, forestry, fishing Construction Food, beverages, tobacco Text ile, app arel, leather Public administration WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 31 The entropy for total sales flows is high across all countries for communication services and generally large for chemical, petrol, rubber etc; and transport and storage. The entropy for total sales flows is also high for finance in the United Kingdom. The finding that finance ranks more highly in New Zealand for the total sales entropy than the column entropy supports the hypothesis that finance is more important in terms of lending to industries than for final demand. The relative importance of electricity, gas, and water is lower in New Zealand compared to other countries. Electricity, gas, and water has the highest entropy for total sales flows in Belgium, Finland and Germany. It ranks second in Australia and third in Denmark, Norway and the United Kingdom. In New Zealand electricity, gas, and water has the eighth largest entropy for total sales flows. A lower degree of inter industry connectedness for this industry is in line with the finding in Black, Guy and McLellan (2003) of a decline in productivity in the electricity, gas, and water over the 1993-2002 period. 4.3 Value added index 22 To assess the effect of a change in final demand on value added, the value added index can be used. Changes in value added give an indication of the effect on GDP as GDP is the sum of value added and taxes on products. The value added index is measured as follows v .j .j Nv .j j1 b BV (1/ N) b = =∑ (15) where N vi .j ij i1 i v bb x = =∑ is the input requirement for a unit increase in the final demand for industry j’s output, weighted by each industry’s ratio of value added i v to gross output i x. The value added index can be interpreted as an estimate of the increase in value added that results from higher final demand for industry j’s output. The value added index is plotted in Figure 12. The increase in value added following a rise in final demand in New Zealand is largest for electricity, gas, and water; mining; public administration; dwellings, property and business services; education, health, social services etc; finance; communication services; and trade, restaurants, hotels. These industries are also generally important contributors to value added in the comparator countries. In part, the services industries are high value adding industries across countries because of the high labour component in these industries. 22 We would like to thank Barry Voice from Statistics New Zealand for suggesting the calculation of this index. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 32 4.4 Value added production multiplier An alternative measure to assess the effects of a change in final demand on value added, is the value added production multiplier. The value added production multiplier is measured as follows w j.jj. bvD = (16) where ∑ = = N 1i w ij w j. bb is the input requirement for a unit increase in the final demand for sector j’s output, weighted by each sector’s share in total final demand, and j v is the share of value added in industry j’s output. The sum of value added production multipliers across industries is one. j. D hence shows the direct and indirect contribution of a unit increase in final demand to value added in industry j relative to other industries. The value added production multiplier weighted by final demand is plotted in Figure 13. The contribution to a unit increase in final demand in New Zealand is largest for trade, restaurants, hotels; construction; public administration; dwellings, property and business services; and education, health, social services etc. The contribution of these industries is also generally large in the other countries. Figure 14 shows the contribution of industries to value added from a unit increase in exports. Weighting by exports increases the relative contribution of transport and storage in all countries, apart for Norway, where it remains the same. The value added production multiplier weighted by exports reveals the main exporting industries in each country. For example, the contribution to value added from exports is largest for mining in Australia and Norway, for wood, paper products, printing in Finland and machinery and equipment; and chemical, petrol, rubber etc in Germany. Exports appear to be more diversified in New Zealand and Belgium. To measure the spread of the production multiplier we can use the coefficient of variation, which is calculated as follows 1 22 NN .j .j j1 j1 N .j j1 (1/ N) D (1/ N) D coefficient of variation (1/ N) D == =     −      = ∑∑ ∑ (16) The coefficient of variation of the value added production multiplier weighted by exports is 0.003 in New Zealand and 0.004 in Belgium. This compares to 0.007 in Denmark, 0.009 in Finland and Germany, 0.012 in Australia, 0.032 in the United Kingdom and 0.061 in Norway. In Belgium and New Zealand, the contribution to value added from a unit increase in export demand is largest for trade, restaurants, hotels. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 33 Figure 12: Value added index Finland 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Communication services Agric ulture, forestry, fishing Education, health, social services Finance Dwellings, property and business servic es Trade, restaurants, hotels Wood and paper products, printing Public administration Food, beverages, tobacco Mining Transport and storage Construction Electricity, gas, and water Textile, apparel, leather Machinery and equipment Chemical, petrol, rubber etc Denmark 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Communication services Dwellings, property and busine ss servic es Education, health, social servic es etc Trade, restaurants, hotels Public administration Agric ulture, forestry, fishing Mining Electricity, gas, and water Finance Construction Food, beverages, tobacco Wood and paper products, printing Transport and storage Machinery and equipment Chemical, petrol, rubber etc Textile, apparel, leather Belgium 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 Public administration Communication services Finance Electricity, gas, and water Construction Education, health, social services etc Trade, restaurants, hotels Dwellings, property and business services Transport and storage Food, beverages, tobacco Wood and paper products, printing Agric ulture, forestry, fishing Chemical, petrol, rubber etc Textile, apparel, leather Machinery and equipment Mining Australia 0 0.2 0.4 0.6 0.8 1 1.2 Finance Dwellings, property and business services Education, health, social services etc Electricity, gas, and water Public administration Mining Communication services Trade, restaurants, hotels Construction Food, beverages, tobacco Transport and storage Agric ulture, forestry, fishing Wood and paper products, printing Chemical, petrol, rubber etc Textile, apparel, leather Machinery and equipment WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 34 Norway 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Mining Electricity, gas, and water Dwellings, property and business services Public administration Trade, restaurants, hotels Education, health, social services etc Agric ulture, forestry, fishing Wood and paper products, printing Construction Transport, communication, finance Food, beverages, tobacco Textile, apparel, leather Machinery and equipment Chemical, petrol, rubber etc New Zealand 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Electricity, gas, and water Mining Public administration Dwellings, property and business services Education, health, social services etc Finance Communication services Trade, restaurants, hotels Wood and paper products, printing Transport and storage Agric ulture, forestry, fishing Food, beverages, tobacco Construction Textile, apparel, leather Chemical, petrol, rubber etc Machinery and equipment Germany 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Dwellings, property and business services Education, health, social services etc Communication services Electricy, gas, and water Trade, restaurants, hotels Public administration Construction Agric ulture, forestry, fishing Wood and paper products, printing Transport and storage Food, beverages, tobacco Finance Machinery and equipment Chemical, petrol, rubber etc Mining Textile, apparel, leather United Kingdom 00.20.40.60.811.2 NPISH: Education, health and social work Financial intermediation Mining and quarrying NPISH: Other services Wholesale and retail trade Education, health and social work NPISH: Financial intermediation Construction Other services Electricity, gas, and water General government: Education, health and social work Transport and communication Agriculture Public administration General government: Public administration General government: Other services Manufacturing WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 35 Figure 13: Value added production multiplier (final demand weighted) Finland 0 0.02 0.04 0.06 0.08 0.1 Educat ion, health, social services etc Public administ rat ion Transport and st orage Trade, restaurants, hotels Dwellings, property and business services Co nst ruct ion Wood and paper products, printing M achinery and equip ment Communication services Finance Food, beverages, tobacco M ining Agriculture, forestry, fishing Elect ricity, g as, and wat er Chemical, pet rol, rubber et c Textile, apparel, leat her De n m ar k 0 0.02 0.04 0.06 0.08 0.1 Public administ rat ion Co nst ruct ion Food, beverages, tobacco Educat ion, health, social services etc Dwellings, property and business services Trade, restaurants, hotels Elect ricity, g as, and wat er Finance M achinery and equip ment Communication services Transport and st orage Wood and paper products, printing Textile, apparel, leat her Agriculture, forestry, fishing Chemical, pet rol, rubber et c M ining Belgium 0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 Public administ rat ion Co nst ruct ion Trade, restaurants, hotels Dwellings, property and business services Educat ion, health, social services etc Elect ricity, g as, and wat er Communication services Food, beverages, tobacco Chemical, pet rol, rubber et c Transport and st orage Finance M achinery and equip ment Wood and paper products, printing Agriculture, forestry, fishing Textile, apparel, leat her M ining Australia 0 0.02 0.04 0.06 0.08 0.1 Construction Dwellings, property and business services Public administration Education, health, social services etc Mining Finance Transport and storage Trade, restaurants, hotels Electricity, gas, and water Communication services Agric ulture, forestry, fishing Food, beverages, tobacco Machinery and equipment Wood and paper products, printing Chemical, petrol, rubber etc Textile, apparel, leather WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 42 4.6 Import content of exports, gross fixed capital formation and consumption 24 GDP at market prices can be calculated as the sum of total use in purchasers’ prices of final demand less total economy imports. Thus, all else equal, an increase in imports leads to a decline in GDP. To assess the import content of final demand output, the cumulated primary input coefficient for final demand categories can be used. The coefficient shows the contribution of primary inputs to consumption, exports, gross fixed capital formation and changes in inventories taking into account direct and indirect costs of primary inputs by all industries and the ultimate disposition of commodities produced.25 The matrix of cumulated primary input coefficients for categories of final demand Y is calculated as follows ww SMQY += (18) where ]q[Q w ik w= with ∑∑ == + =L 1l N 1i ik w ik lkik sq q q is industry i’s weighted output absorbed by final demand category k, ]s[S w lk w= with ∑∑ == + =L 1l N 1i lk w lk lkik sq s s is the weighted primary input l absorbed by final demand category k, where L denotes the number of primary input categories. Cumulated primary input coefficients for final demand categories across primary inputs sum to one. The coefficients hence show the contribution of primary inputs to the cost of producing final demand output. The cumulated primary input coefficients for exports, consumption and gross fixed capital formation are plotted in Figures 16 to 18. Primary inputs are divided into components of value added (i.e. compensation of employees, employers’ social contributions, gross operating surplus and mixed income and other taxes less subsidies on production), imports and other primary inputs. The cumulated primary input coefficient for exports, plotted in Figure 16, shows large differences in the import content of exports across countries. Belgium, which has the largest share of exports in total supply (25.5 percent, Figure 1), also has the highest import content in exports (58.3 percent). Australia’s exports, whose share in total supply is smallest (10.3 percent), has the lowest import content (16 percent). A high import content in Belgium means that exports are contributing proportionally less to value added, 0.409 per unit of value added, compared to Australia, 0.8 per unit of value added. The export share in gross output in New Zealand is also relatively low (14.1 percent), but the contribution to value added is high (76.1 percent). The contribution of a unit of exports to value added in New Zealand is comparable to that in the United Kingdom. 24 See Statistics New Zealand (1989) for more details on cumulated primary input coefficients for categories of final demand. 25 The exact categories of primary inputs for each country are listed in Table A3 in the appendix. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 43 Figure 16: Cumulated primary input coefficient for exports Figure 17: Cumulated primary input coefficients for consumption 37.8 22.9 33.4 25.7 46.9 35.0 22.0 43.0 0.0 0.0 0.0 7.5 0.0 0.0 4.2 0.0 39.1 17.7 26.0 33.4 22.5 39.2 46.8 33.3 3.0 0.3 -0.7 -1.4 0.4 1.8 0.7 1.5 16.0 58.3 41.8 29.6 29.2 20.4 19.5 23.9 4.0 0.8 -0.5 5.1 1.0 3.5 6.8 -1.7 -20 0 20 40 60 80 100 Australia Belgium Denmark Finland Germany New Zealand Norway United Kingdom Compensation of employees Employers' social contributions Gross operating surplus and mixed income Other taxes less subsidies on production Imports Other primary inputs 42.7 38.2 40.9 31.4 45.6 33.5 34.1 43.5 0.0 0.0 0.0 9.3 0.0 0.0 6.6 0.0 33.6 30.8 28.8 31.6 31.6 34.8 26.0 26.6 3.3 1.2 0.1 -1.8 -0.3 2.6 -1.0 1.7 13.3 20.1 13.9 16.8 12.9 18.7 20.3 19.0 7.0 9.7 16.4 12.7 10.3 10.4 14.0 9.2 -20 0 20 40 60 80 100 Australia Belgium Denmark Finland Germany New Zealand Norw ay United Kingdom Compensation of employees Employers' social contributions Gross operating surplus and mixed income Other taxes less subsidies on production Imports Other primary inputs WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 44 The contribution of a unit of consumption of goods and services to value added in New Zealand is comparable to that in Belgium, Denmark, Finland and the United Kingdom, around 70-72 percent (Figure 17). The import content, at 18.7 percent, is similar to that in the United Kingdom (19 percent). The import content of gross fixed capital formation, plotted in Figure 18, is highest in Norway, at 43 percent, followed by Belgium (41.7 percent) and New Zealand (36.7 percent). A large import content of gross fixed capital formation is suggestive of a high degree of acquisition and diffusion of foreign technology in these countries. Figure 18: Cumulated primary input coefficients for gross fixed capital formation 5 Summary and conclusions This paper has examined New Zealand’s industrial structure relative to that in other OECD countries using input output analysis. Comparator countries included Australia, Belgium, Denmark, Finland, Germany, Norway and the United Kingdom. Backward and forward linkages, indices of industry interconnectedness, a value added index, a value added production multiplier, a cumulated primary input coefficient for compensation of employees and a measure of import content of final demand output were calculated. The analysis suggests that New Zealand’s industrial structure is broadly similar to that in other OECD countries. Some differences arise as certain industries are more important in some countries. For example, the contribution to value added from exports is large for mining in Australia and Norway, for wood, paper products, printing in Finland and machinery and equipment; and chemical, petrol, rubber etc in Germany. New Zealand’s (and Belgium’s) exports appear to be more diversified. 35.4 33.4 43.4 28.6 38.7 27.4 25.1 36.5 0.0 0.0 0.0 7.9 0.0 0.0 4.6 0.0 29.7 24.7 21.4 23.0 32.2 28.9 22.1 26.9 5.1 0.4 -0.3 -0.6 0.4 1.2 -0.3 0.9 25.0 41.7 25.2 32.8 17.3 36.7 43.0 32.3 4.7 -0.2 10.3 8.4 11.5 5.8 5.6 3.4 -20 0 20 40 60 80 100 Australia Belgium Denmark Finland Germany New Zealand Norw ay United Kingdom Compensation of employees Employers' social contributions Gross operating surplus and mixed income Other taxes less subsidies on production Imports Other primary inputs WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 45 The share of exports in total supply is lower in Australia, New Zealand and the United Kingdom, but the value added of these countries’ exports is higher than in economies with a relatively large share of exports in total supply. The main reason for this larger contribution to value added in Australia, New Zealand and the United Kingdom is a lower import content of exports. This suggests that looking at exports as a share of total supply or as a share of GDP only to assess the importance of exports for economic growth can be misleading. Finally, the share of gross operating surplus in value added is high in New Zealand and the proportion of compensation employees is low, indicating a high rate of return to capital relative to labour. This probably warrants further investigation. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 46 References Black, M, M Guy and N McLellan (2003) "Productivity in New Zealand 1988 to 2002." New Zealand Treasury Working Paper 03/06. Chatterjee, S (1989) "Policy conflicts in economic restructuring: A New Zealand case study in input-output framework." Massey Economic Papers. Claus, I (2003) "Changes in New Zealand's production structure: An input output analysis." New Zealand Treasury Working Paper 03/01. Dixon, R (1996) "Inter-industry transactions and input-output analysis." Australian Economic Review 115(3rd quarter): 327-336. Hirschman, A O (1958) The strategy of economic development: Yale University Press. Morimoto, Y (1970) "On aggregation problems in input-output analysis." Review of Economic Studies 37: 119-126. Rasmussen, P N (1956) Studies in inter-sectoral relations: North-Holland. Soofi, A (1992) "Industry linkages, indices of variation and structure of production: An international comparison." Economic Systems Research 4(4): 349-375. Statistics New Zealand (1989) Inter-industry study of the New Zealand Economy 1981-82: Statistics New Zealand. Statistics New Zealand (2003) "Regional input-output study: Methodological review." http://www.stats.govt.nz/domino/external/web/Aboutsnz.nsf/htmldocs/Regional+InputOutput+Methodology+Study. Theil, H (1971) Principles of econometrics: John Wiley & Sons, Inc. United Nations (1993) "Supply and use tables and input-output." System of National Accounts 1993. WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 47 Appendix Table A1: Categories of final demand Australia Belgium Denmark Finland Germany Netherlands New Zealand Norway United Kingdom Financial intermediation services indirectly measured Financial intermediation services indirectly measured Financial intermediation services indirectly measured Financial intermediation services indirectly measured Financial intermediation services indirectly measured Final consumption expenditure Final consumption expenditure Final consumption expenditure Final consumption expenditure Final consumption expenditure Final consumption expenditure Final consumption expenditure Final consumption expenditure Final consumption expenditure Households Households Private consumption Households Households Households Households Households Households Non-profit institutions serving households Individual nonmarket government consumption Non-profit institutions Non-profit institutions Non-profit institutions serving households Private nonprofit institutions serving households Private nonprofit institutions serving households Resident households in the rest of the world Government Government Collective government consumption Government Government Government Central Government Government General government Local Government WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 48 Belgium Denmark Finland Germany Netherlands New Zealan d Norway United Kingdom Gross capital formation Gross capital formation Gross capital formation Gross capital formation Gross capital formation Gross capital formation Gross capital formation Gross capital formation Gross fixed capital formation Gross fixed capital formation Gross fixed capital formation Gross fixed capital formation Gross fixed capital formation Gross fixed capital formation Gross fixed capital formation Gross fixed capital formation Buildings V aluables Changes in inventories Changes in stocks Changes in inventories Change in inventories Changes in inventories Change in inventories Change in inventories Changes in inventories Exports Exports Exports Exports Exports Exports Exports Exports Trade and transport margins Paid minus imputed value added tax and consumption of imputed bank services WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 49 Table A2: Categories of value added Australia Belgium Denmark Finland Germany Netherlands New Zealand Norway United Kingdom Compensation of employees Wages and salaries Compensation of employees (empty at constant prices) Wages and salaries Compensation of employees Wages and salaries Compensation of employees Wages and salaries Compensation of employees Employers' social contributions Employers' social contributions Employers' social contribution Gross operating surplus and mixed income Net operating surplus Gross operating surplus and mixed income Operating surplus/mixed income Gross operating surplus Gross operating surplus Operating surplus Gross operating surplus Gross operating surplus Consumption of fixed capital Consumption of fixed capital Consumption of fixed capital Other taxes less subsidies on production Other taxes less other subsidies Other production taxes net (empty at constant prices) Other taxes on production less subsidies Other taxes on production less subsidies Other taxes on production Other taxes on production Other taxes on production, net Taxes less subsidies on production WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 50 Table A3: Industry categories No. Categories Australia Belgium Denmark Finland Germany New Zealand Norway United Kingdom Agriculture, hunting and trapping Farming and livestock Agriculture Agriculture, hunting and fishing Agriculture and hunting Horticulture and fruit growing Agriculture, forestry, fishing Agriculture Forestry and fishing Forest products Horticulture, orchards etc. Forestry, logging and related service activities Forestry products and related services Livestock and cropping farming Fishing Agricultural services, landscape gardeners etc. Fishing Dairy cattle farming Forestry Other farming Fishing Services to agriculture, hunting and trapping Forestry and logging Fishing Agriculture, forestry, fishing 1 WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 51 No. Categories Australia Belgium Denmark Finland Germany New Zealand Norway United Kingdom Mining Coal, lignite and peat Extraction of crude petroleum, natural gas etc. Mining and quarrying Coal and peat Mining and quarrying Mining, quarrying, oil and gas extraction Mining and quarrying Natural hydrocarbons Extraction of gravel, clay, stone and salt etc. Oil, gas and related services Oil and gas exploration and extraction Uranium ores Uranium and thorium Metal ores Metal ores Other mining products Other mining and quarrying Meat and dairy products Food products Manufacture of food, beverages and tobacco Manufacture of food products Food and feed products, beverages Meat and meat product manufacturing Food products and beverages Manufacturing Other food products Tobacco manufacturing Manufacture of beverages and tobacco products Tobacco products Dairy product manufacturing Tobacco Beverages and tobacco products Other food manufacturing Beverage, malt and tobacco manufacturing Mining Food, beverages, tobacco 2 3 WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 58 No. Categories Australia Belgium Denmark Finland Germany New Zealand Norway United Kin g dom Ownership of dwellings Real estate Real estate activities Letting and operation of dwellings Real estate and rental Real estate Own final use Property and business services Ownership of owner-occupied dwellings Renting of machinery and equipment etc. Other real estate activities Other rental Ownership of owner-occupied dwellings Real estate, renting and business activities Computer services Computer and related activities Business activities Computer services Equipment hire and investors in other property Research and development Research and development Research and development Business services Business administrative and management services Consultancy etc. and cleaning activities Business administrative and management services Government administration Public administration services Public administration etc. Administration, compulsory social security Public administration, defence, social insurance Central government administration, defence, public order and safety services Central government Public administration Local government administration services and civil defence Local government General government: Public administration General government: Education, health and social work Dwellings, property and business services Public administration 14 15 WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 59 No. Categories Australia Belgium Denmark Finland Germany New Zealand Norway United Kin g dom Education Education Education Education Education Education Education Education, health and social work Health and community services Health and social work Health care activities Health and social work Health, veterinary and social services Health and community services Services by community organisations Social institutions etc. for children Other community, social and personal services Other private and personal services Social institutions etc. for adults Cultural and recreational services Recreational, cultural, sporting activities Recreational, cultural, sporting activities Cultural, recreational and entertainment services Cultural and recreational services Other services Personal and other services Cleaning, waste collection and management Sewage and refuse disposal and similar activities Waste disposal, sewerage and drainage services etc. Personal and other community services General government: Other services Personal services Activities of membership organisation n.e.c. Interest groups, churches etc. Non-profit institutions serving households: Other services Extra territorial services Other service activities Other services Non-profit institutions serving households Domestic services Household services Trade and transport margins Education, health, social services etc. 16 Non-profit institutions serving households: Education, health and social work WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 60 Table A4: Categories of primary inputs Australia Belgium Denmark Finland Germany Netherlands New Zealand Norway United Kingdom Value added Value added Value added Value added Value added Value added Value added Value added Value added Complementary imports Imports Imports Imports Imports Imports Imports Imports Imports Competing imports Consumption expenditure of non-resident households Final consumption by resident households in the rest of the world Direct purchases by non-residents Net exports of goods Taxes on imports (excluding value added tax) Import subsidies Non-deductible value added tax WP 03/16 NZ’S PRODUCTION STRUCTURE: AN INTERNATIONAL COMPARISON 61 Australia Belgium Denmark Finland Germany Netherlands New Zealand Norway United Kingdom Value added taxes Value added tax Value added tax Trade and transport margins Taxes less subsidies on products Taxes less subsidies on products Product taxes Taxes on products less subsidies Taxes on domestic production (excluding value added tax) Taxes on products Taxes on products Taxes less subsidies on products Product subsidies Subsidies on domestic products Sales of existing fixed assets Used fixed capital Corrections Adjustment related to wages and salaries in kind Financial intermediation services indirectly measured adjustment