Value added reflects the contribution
of labour and capital to production. It can be shown by: type of enterprise/establishment
(activity, size, market/non-market, age, etc.); type of product, and institutional sector;
and combinations of these, and is a key variable in economic analyses such as productivity
and structural analysis.
Value added at basic prices can be
simply defined as the difference between gross output (at basic prices) and
intermediate consumption (at purchasers prices) and can be decomposed into the
following components: Compensation of employees; Gross operating surplus; Mixed
income; and Other taxes on production less Subsidies on production. It can also be
derived as the difference between GDP (at market prices) and taxes on products less
subsidies on products.
The SNA recommends the basic price
valuation for value added but it can also be measured on different price bases such as
producers prices and at factor cost.
One of the major advantages of value
added is that it avoids problems inherent in the measurement of output which is a gross
concept - gross in the sense that it counts the output of all production units. Countries
with fragmented production networks therefore will have, all other things equal, higher
output than those with more consolidated networks, complicating international comparisons.
Indeed this is also a temporal problem as production networks can become more or less
consolidated (through outsourcing for example) within a country from one year to another.
Indeed production networks have become increasingly globalised in recent years, further
affecting temporal and cross-country comparability.
Value added avoids these problems by
measuring the value that a resident unit adds to that of the resident units that supply its inputs.
Like its GDP counterpart, value added
can also be measured on a net basis, where the "net" refers
to net of depreciation.
Like its nominal counterpart, real
value added can be derived as the difference between real output and real intermediate
consumption, an approach known as double-deflation.
A useful additional comment worth
making in the context of value added concerns non-market output. By convention, because
market prices are not observable, non-market output is calculated on a sum of costs
approach with value added set equal to depreciation only and no net return to capital
Not all countries produce value
added on the basis of basic prices.
The tables and figures showing
breakdowns by activity are based on the ISIC Rev. 3 industrial classification system.
Countries generally collect information using their own industrial classification
systems. The conversion from a national classification system to ISIC may create some
comparability issues. For example, for Japan, Hotels (which form approximately 2.8-3.0%
of value added) are included in Other services not wholesale, retail, etc. That said, at
the 6 activity level presented here, for most countries the sectors are generally
Japan uses approximately market prices. New
Zealand uses producer prices, and Iceland and the USA use factor