INTRODUCTION
Input-output (I-O) accounts show the relationship between all Industries within an economy and the Commodities that these Industries produce and use. I-O accounts provide a framework for producing national economic accounts and developing important economic indicators, such as gross domestic product (GDP). The core of I-O accounts consists of two basic national-accounting tables: (1) a table that describes the production or the overall supply of Commodities by Industries (the Make or the Supply table) and (2) a table that describes the use of Commodities by Industry or final user (the Use Table). Information from these tables can then be used to generate symmetric I-O tables or the Leontief I-O table, which are used for impact analysis. These tables can be prepared and presented using two different frameworks: the make-use framework or the supply-use framework.
Global economic accounting standards, as described by the System of National Accounts (SNA) 2008, recommend that national I-O accounts be presented using a supply-use framework. This article describes the two frameworks and the differences between them, including a brief discussion of the differences in valuation.
MAKE, SUPPLY, AND USE TABLES
MAKE TABLE
The Make Table shows the value, in producers’ prices, of each Commodity produced by each Industry within a nation. An Industry can produce more than one Commodity. An Industry that is the main producer of a Commodity is called the primary producer, while an Industry that also produces the Commodity is called a secondary producer.
The Make Table is presented in a matrix format with the rows representing Industries and columns representing Commodities (Table 1).
Table 1. Make Table
The entries in each row show the Commodities that are produced by a given Industry. In each row, one “diagonal” cell shows the value of production of the Commodity for which the Industry has been designated the primary producer. Entries in other cells in the row show the values of production for Commodities of which the Industry is a secondary producer. The sum of each row represents Total Industry Output.
The entries in each column show the Industries that produce a given Commodity1. These entries represent the value of production by both primary and secondary producers of the Commodity. The sum of each column represents Total Commodity Output. The Total Industry Output across all industries is equal to Total Commodity Output across all commodities.
Because Industries can make more than one Commodity, the Total Industry Output for a given Industry does not always equal the Total Commodity Output for that Industry’s primary Commodity in the Make Table.
SUPPLY TABLE
The Supply Table extends the Make Table to show the total supply of Commodities (from both domestic and foreign producers) available for use within a nation. It shows the value, in basic prices, of each Commodity available within the region and distinguishes between supply from domestic Industries and supply that has been imported.
Another extension of the Supply Table is that it also provides the total supply of Commodities available for use in a given nation in purchasers’ prices, also known as market prices. It presents and implements a valuation adjustment to transform Total Commodity Supply in basic prices to Total Commodity Supply in purchasers’ prices. This is helpful because the corresponding Use Table, which describes how Commodities are used by Industries in their production process, is also presented in purchasers’ prices.
The Supply Table is also presented in a matrix format, but it differs from the Make Table in that the rows represent Commodities and the columns represent Industries (Table 2).
Table 2. Supply Table
The entries in each row show the Industries that produce a given Commodity within the region and provides the Total Commodity Output for the region, the value of imported products (including some price adjustments), and the Total Product (or Commodity) Supply in basic prices. Continuing across the row, the total value of Commodity Supply in the region is transformed from basic prices to purchasers’ prices, by incorporating data on wholesale and retail trade margins, transportation costs, import duties, taxes on products, and subsidies.
There are several row total values that are of interest in a national Supply Table:
Total Commodity Output: Represents total domestic output and is equal to the sum of domestic Commodity production.
Total Commodity Supply (Basic Prices): Represents total available Commodity supply and is equal to the sum of domestic output plus imports.
Total Commodity Supply (Purchasers’ Prices): Represents total available Commodity supply, valued at purchasers’ prices.
The entries in each column show the Industries that produce a given Commodity. The sum of each column represents Total Industry Supply.
Like the Make Table, because Industries can make more than one Commodity, the Total Industry Output for a given Industry does not always equal the Total Commodity Output for that Industry’s primary Commodity.
USE TABLE
At the national-level, Use Tables show the total use of Commodities (either domestic output or domestic supply) whether for Intermediate Inputs (the amount of a Commodity purchased by each Industry as an input into the Industry’s production process) or Final Demand (the amount of a Commodity purchased for final consumption). In the make-use framework, the perspective is domestic output, while the supply-use’s framework is domestic supply (and no distinction is made in the Use Table between imports and domestically produced output). They also present the Value Added by Industry, or the income generated by production. However, the Use Table will have a slightly different structure depending on whether it is developed using the make-use framework (Table 3) or the supply-use framework (Table 4).
The most noteworthy differences are related to the type of valuation used (producers’ prices, basic prices, or purchasers’ prices, each of which is discussed in the next section). In the make-use framework, Use Tables are generally presented in producers’ prices. In the supply-use framework, they are presented in basic and purchasers’ prices. This is an important distinction for a variety of reasons, as discussed in the final section.
Table 3. Use Table (Make-Use Framework)
Table 4. Use Table (Supply-Use Framework)
CONCEPTS OF VALUATION
There are three different ways that the value of goods and services can be measured: producers’ price, basic price, and purchasers’ price. These concepts differ in their treatment of taxes, subsidies, and trade and transport margins, and form the primary differences between the make-use framework and supply-use framework.
Purchasers’ prices reflect the total amount paid by the purchaser in order to take delivery of a unit of a good or service. It includes transport costs, trade margins, and taxes (unless the taxes are deductible by the purchaser). Essentially, purchasers’ prices reflect the effective actual price paid by a purchaser for a good or service, whether it be an Industry purchasing goods and services as Intermediate Inputs or Institutions purchasing goods and services for final consumption.
Producers’ prices reflect the total amount received by the producer from the purchaser as a result of the sale of a unit of a good or service. This can be thought of as the price of goods and services “at the factory gate”. This valuation does not include wholesale and retail margins and transportation costs, but it does include sales taxes and excises taxes collected and remitted by producers. Producers’ prices do not include government subsidies received by the producers in the valuation of Output. In other words, it is the price that the producer invoices to the purchaser. The make-use framework presents Output in producers’ prices.
Basic prices reflect the total amount retained by the producer as a result of the sale. It is the price that is considered most relevant to the producers’ decision-making process. It is the price of the good or service before any taxes have been added, is inclusive of any subsidies, and excludes any transportation charges or other margins that have been invoiced separately by the producer. The supply-use framework presents Output in basic prices.
COMPARISON BETWEEN THE MAKE-USE AND SUPPLY-USE FRAMEWORKS
While the Make, Supply, and Use Tables have different structures and types of valuation, the information presented in each is quite similar. This section compares the make-use framework with the supply-use framework in the context of data supplied by the U.S. Bureau of Economic Analysis (BEA). Historically, the BEA has measured Output in producers’ prices and presented I-O accounts using the make-use framework. In recent years, however, the BEA has shifted towards the supply-use framework and now presents Industry statistics in both frameworks and valuation in both producers’ prices and basic prices. To date, IMPLAN uses the BEA historical convention of the make-use framework and producers’ prices for the annual U.S. products while the IMPLAN Canada Provincial and International products use the supply-use framework and basic prices.
MAKE AND SUPPLY TABLE COMPARISON
Although the Make and Supply Tables have different structures, the two approaches that the BEA uses to generate these tables are actually quite similar. In fact, the Supply and Make tables are fully consistent with one another. In other words, the BEA does not compile them independently from one another. Instead, the BEA constructs the Make Table and applies a series of adjustments, additions, and other transformations to translate the tables generated through the make-use framework to the supply-use framework. This section describes that process, but first there are some noteworthy differences between the two approaches.
First and foremost, the frame of reference for the make-use framework is domestic output. As such, imports are not included in the Make Table. Instead, they appear in the Use Table as an offsetting adjustment to the value of imports that have been embedded in the values for Intermediate Inputs and Final Demand sections. The frame of reference for the supply-use framework is total domestic supply, inclusive of imports. As such, imports are added to domestic output in the Supply Table to arrive at total domestic supply.
A second major structural difference between the two approaches is the treatment of transportation costs and wholesale and retail margins. With the supply-use framework, transportation costs and wholesale and retail margins have been reallocated to the goods that are transported or sold through wholesalers and retailers. This reallocation is part of the transformation from basic prices to purchasers’ prices in the Supply Table (Trade Margins column in Table 2).
The first step in constructing the Supply Table from the Make Table is to transpose the Make Table and transform the prices from producers’ prices to basic prices. As noted above, this transformation includes making two valuation adjustments: (1) removing taxes on products and (2) adding subsidies.
The second step in constructing the Supply Table is to add the import subsection. This is done by changing the sign on the import column in the Use Table in the make-use framework and shifting it to the Supply Table. Additional adjustments in valuation must be made to translate the imports into basic prices, which includes removing import duties (comparable to taxes on products in the domestic production matrix).
Finally, total supply at basic prices is transformed into total supply at purchasers’ prices by applying the valuation adjustments for wholesale and retail trade margins (Trade Margins) and transportation costs and finally adding back in the taxes on products and customs duties. The purpose of the Trade Margins and Transportation Costs columns is to readjust the allocation of the wholesale and retail trade margins that have now been reallocated to the goods that are transported or sold through wholesalers and retailers. For example, using 2013 BEA data, the Construction Industry’s payments to Manufacturing were $269 billion under the make-use framework and $403 billion under the supply use framework. The trade margins have been included in the value that the Construction Industry pays to Manufacturing under the supply-use framework. This is as opposed to the make-use framework where those margins are accounted for in the Construction Industry’s payments to the Wholesale Industry. Because these trade margins have been included in the Use Matrix of the supply-use framework, they must be removed from the Wholesale row in the Supply Table. To do this, the Supply Table uses the Trade Margins column, where the Wholesale (and Retail) Trade rows will have negative values (Table 2). This reallocation of wholesale and retail trade margins is part of the transformation from basic prices to purchasers’ prices in the Supply Table (Table 2). Similarly, the Transportation and Warehousing Industry row will have a negative value in the Transportation Costs column (Table 2).
USE TABLE COMPARISON
While the structure of the Use Table is similar between the two frameworks, in that they show the use of Commodities by Industry and Final Users and the Value Added by Industry, there are some substantial differences. One structural difference is that there is no separate account for imports in Use Table under the supply-use framework. In other words, no distinction is made in the Use Table between imports and domestically produced Output in the supply-use framework. In the supply-use framework, imports have already been included in the Supply Table as a separate column and imports (a positive value) are added to total domestic commodity output to obtain total commodity supply. In the make-use framework, imports are recorded in the Use Table and have negative values. In this case, imports appear as an offsetting adjustment to the value of imports embedded in the Intermediate Inputs and Final Use sections.
The second structural difference is that, in the supply-use framework, Value Added is presented in both basic prices and purchasers’ prices, while the make-use framework presents Value Added only in producers’ prices. The inclusion of Value Added at purchasers’ prices, as opposed to only basic prices, in the Use Table is important because the sum of Value Added at market prices across all Industries is equal to the GDP for the economy. Many of the differences between the two frameworks are related to the differences between producers’ prices, basic prices, and purchasers’ prices. For example, using purchasers' prices instead of producers’ prices to capture Commodity use by Industry and final users better reflects the actual cost that a user incurs for the product or service (inclusive of the costs of transportation as well as any wholesale and retail trade margins).
Another important distinction is that Value Added is measured differently depending on whether it is valued in producers’ prices or basic prices. In producers’ prices, Value Added includes all taxes on production and imports net of subsidies (TOPI), whereas in basic prices it only includes other taxes on production net of subsidies (OTXS). Value Added can also differ depending on whether a country has value-added taxes (VAT). Recall that Value Added is equal to Output minus Intermediate Inputs. Because the U.S. does not have value-added taxes (VAT), the total value of Intermediate Inputs is the same whether it is valued in producers’ prices or purchasers’ prices. Thus, in the U.S. make-use framework, Value Added (in producers’ prices), is also equal to Value Added (or GDP) at purchasers’ prices. However, in countries that have a value-added tax structure, the producers’ price excludes VAT and therefore does not reflect purchasers’ prices. All of these differences in valuation can result in national-level Value Added statistics that are not comparable across a nation’s national accounts. The SNA 2008 recommendation is to measure Value Added at basic prices and purchasers’ prices for international comparison. Read Concepts of Valuation for a more detailed discussion of basic, producers’, and purchasers’ prices and the implications for Value Added.
REFERENCES
Jeffrey A. Young, Thomas F. Howells III, Erich H. Strassner, and David B. Wasshausen, “BEA Briefing: Supply-use tables for the United States,” Survey of Current Business (September 2015). https://apps.bea.gov/scb/pdf/2015/09%20September/0915_supply_use_tables_for_the_united_states.pdf
1For the purposes of this article, the focus is on Commodity production by Industries. Commodities may also be produced and/or sold by Institutions.
Written August 1, 2024