Social Accounting and Economic Modelling for Developing Countries

Analysis, Policy and Planning Applications

S.I. Cohen

• Publisher: Taylor & Francis
• Year: 2017
• eBook ISBN: 9781351763677
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This title was first published in 2002. Providing the first comprehensive systematic assessment of the social accounting matrix (SAM) in twenty developing countries, Solomon Cohen introduces key research in the area and looks at its practical applications. Divided into two parts, the first part of each chapter: -Deals with the construction and structural analysis of the SAM -Examines refinements of the SAM as a self-contained model of the economy; study of SAM multipliers of growth and distribution -Explores decompositions of multiplier effects and cross-country and inter-temporal comparative analysis of changing economic structures. The second part looks at the SAM as a modular framework and a database, which can be flexibly used in economic policy modelling. This valuable reference, and the accompanying volume Social Accounting or Industrial and Transition Economies will be an essential addition to the bookshelves of researchers, instructors, policy makers, scholars and libraries.

Chapter 1

Social Accounting for Development Analysis

1. Introduction

Until two or three decades ago, most economic development analysts and practitioners interpreted socio-economic progress and development solely as a GNP growth process. A superficial view, which was especially prevalent, was that heavy investment, export promotion and the balancing of inputs and outputs are necessary and sufficient to induce such economic growth. Accordingly, development policies, planning methods, and statistical frameworks at the time were developed within that narrow perspective.

To the surprise of many observers, economic performance in a large number of developing countries have shown that, in spite of reasonable growth rates achieved in the sixties and seventies, income inequality, disguised unemployment, poverty and conflict continued to be major obstacles to sustainable economic growth and social welfare. Such information and insights stimulated economists and statisticians in the past two decades to work with broader statistical frameworks which relate economic structures, distribution aspects, social adjustment, and the like to the economic growth process.

The efforts to integrate the ‘social’ with the ‘economic’ were greatly enhanced by the appearance in the eighties of the social accounting matrix, SAM, as a framework for organising multi-dimensional data of the economy. The SAM simultaneously integrated disaggregated data on production, income and expenditure, thereby allowing a systematic recording of diversified economic transactions for the study of growth and its distribution in a particular country.

Since the mid-seventies, there has been a significant shift of interest from the basic input-output table to the social accounting matrix (SAM), as evident from the increased momentum in the design, construction and use of social accounting matrices in developing countries, see for example, Cohen et al. (1984), and Pyatt and Round (1985). The argument in favour of working with the SAM, or as some like to call it an extended input-output model, is the increasingly prevalent requirement by policy-makers and the larger public in developing and developed countries alike, to appraise development in terms of distribution, in addition to production objectives.

The idea of a social accounting matrix, SAM, can be traced back to Quesnay’s Tableau Economique in 1758. The idea was revived only 200 years later. The term social accounting was coined by Hicks in 1942, and the formalisation of the SAM was the work of Stone in 1947. It was associates of Stone, working in the context of developing countries, who presented the first comprehensive publication of a SAM, cf. Pyatt and Roe (1977), where Sri Lanka was taken as a case study.

The SAM itself is nothing more or less than the transformation of the circular flow of the national economy into a matrix of transactions between the various agents, as will be shown in figure 1.1 and tables 1.1 and 1.2 in the next section. The construction of the SAM falls into two phases. In a first phase, the aggregate SAM is set up entirely from published data of the national accounts, corresponding with the circular flow; so that the SAM is no more than a presentation of available national statistics in a matrix form. In a second phase, the disaggregation of the SAM takes place depending on the purpose of the analysis and on available data sources.

SAMs are compiled according to the same accounting principles as input-output tables, each transaction being recorded twice so that any ingoing in one account must be balanced by an outgoing of another account. However, the SAM contains a complete list of transactions describing income, expenditure and production flows among sectors, factors of production and groups of households. These transactions are usually grouped into several sets of accounts belonging to various economic agents, as will be indicated below.

We review in this introductory chapter several uses of the SAM as implemented in this and later chapters. The social accounting matrix is primarily seen as that of a helpful tool in (1) the setting-up of statistical accounts, (2) the initialisation of corresponding models, (3) the conduct of diagnostic studies, and (4) the analysis of relationships between growth and distribution and the formulation of related policies. First, the advantage of forcing national statistics into a social accounting framework is that the statistician can discover inconsistencies and gaps that went unnoticed before. Second, for the purpose of building a model and initialising its base values, the discipline of building an explicit SAM assures that the initial values of the variables in the modelled system are internally consistent. Third, once a SAM is available it can be used to give a quantitative diagnosis of the structure of the whole economy, which is hardly feasible in the conventional presentation of national statistics. These three uses are highlighted throughout the book. There are other more analytical uses of the SAM, which will be the specific concern of each chapter in this book. Fourth, by appropriate manipulations, the matrix can be rearranged so as to give sets of endogenous and exogenous variables, and a coefficient matrix that can be inverted and subjected to a useful multiplier analysis. Especially in the context of developing countries, the SAM has demonstrated its ability to analyse the underlying growth and equity properties of these economies.

In chapter 1 the emphasis will be on introducing the SAM and elaborating on its analytical use in addressing growth and equity issues in the context of economic development.

With the availability of SAMs for different countries and for more years, fruitful cross-country and inter-temporal comparisons have been made on the structure and performance of economic systems. Such comparisons will be shown also to be helpful in investigating the economic mechanisms behind superior and inferior performances, and in directing attention to mechanisms that need to be strengthened to push the economy closer to its potential. These analytical and policy applications will be the main concern of chapters 2, 3 and 4.

The SAM presents a modular structure of the economy, which can be flexibly modelled to address important aspects of fixing consistent planning targets and the monitoring of performance towards achieving these targets. A case study in this area for Pakistan will be the subject of chapter 5.

Computable general equilibrium modelling (CGE) and calibration has been facilitated by the availability of consistently constructed social accounting matrices. The SAM of Indonesia will be employed as a database to quantify a CGE model for the country, and demonstrate the impact of supply impulses to economic growth and income distribution; in chapter 6.

Elements of social accounting can be combined with elements of demographic accounting to treat more aspects of the relationship between economic growth and social welfare in a broader framework. Such aspects include policy making with regard to income allotment by population groups, welfare consequences for vulnerable groups of adjustment policies, and the relative efficiency of direct transfers versus in kind transfers. Chapter 7 reflects on the use of SAMs, in combination with other modelling tools, in this broader framework.

Investigation of whether the gap in the income per capita between rich and poor countries is widening or diminishing has relied mainly on supply side models of economic growth, appropriately adapted to include elements of endogenous growth. SAM models, whi...

Table of contents

• Cover
• Half Title
• Dedication
• Title Page
• Copyright Page
• Table of Contents
• Preface
• 1 Social Accounting for Development Analysis
• 2 Social Accounting and Development Performance: Growth and Distribution in Colombia, Korea, Pakistan and Surinam
• 3 Cross-Country Analysis of SAMs for Ten Developing Countries
• 4 Inter-Temporal Analysis of Social Accounting
• 5 Social Accounting and Circular Flow Planning Models: an Application to Pakistan
• 6 Social Accounting and Computable General Equilibrium Models: an Application to Indonesia
• 7 Social Accounting and Modelling the Interface Between Population and Development
• 8 Social Accounting and the Modelling of Convergence between Rich and Poor Countries
• Appendices
• Bibliography
• Index