_2A_

# Annex A: A Revision of National Accountino<sup>Procedures in Mexico</sup>

In this annex we briefly review national<sup>accounting procedures in Mexico</sup> in order to assess the measurement problems<sup>associated to its different</sup> components. The discussion below is based<sup>on what we have been able to learn</sup> about the Mexican national account system.

# Comoutation of the gross value of -roduction<sup>and value-added</sup>

The first step to compute national accounts<sup>series comprises the</sup> computation of the Gross Value of Production<sup>(VP). Most countries, including</sup> Mexico, have surveys and statistics with quantum<sup>indices of production and</sup> value of production at current prices for<sup>several sectors of the economy.</sup> When no direct information about the VP<sup>**at**current pricesis</sup> available, independently computed price indices of the<sup>different sectors are generally</sup> available. **These** statistics allow to compute good-quality data of VP in both real and nominal terms. The next step is to<sup>compute the value added by</sup> subtracting to the VP the intermediate purchases by firms When there are no good surveys to provide this information directly (the surveys provide the information at current prices; e.g. industrial surveys), a cosmonly used methodology is to apply the fixed coefficients from the Input-Output Matrix. The Matrix provides the exact coefficient for the year in which the matrix was computed, which is normally the base year of the national account system.

This methodology, however, could be inappropriate if the coefficients vary too much, something which often happens with large structural changes in the economy; and very specially, when trade liberalizations takes place. In Meller, Livacich and Arrau (1984) it is shown that after the trade liberalization of the late seventies in Chile, the value-added/VP coefficient was substantially reduced in the industrial sector, mainly due to the substitution of domestic value-added by imported inputs in the production process. The value-added of the industrial sector, therefore, was overestimated because the fix coefficient methodology did not account for this fact. Thig observation suggests the uroent need to chanaw the base<sup>of the</sup> national account system (compute a new inout-outout matrix) after a trade liberalization takes place. In 1985 Mexico started the process of trade liberalization; by 1990 it already was one of the most open developing countries in the world. Since the base year of the national account system is still 1980 the urgency for changing the base of the national account system becomes apparent.

If our presumption is correct and the computation of value added is overestimated in Mexico, then the series of private saving are also overestimated, specially after 1985. However, for the purposes of this report we are unable to evaluate this problem as there is no information available which would allow us to do so.

# Distribution of total supplv into its demand comoonents

The,most difficult part of computing the national accounts is the distribution of supply into its demand components. As we discuss below identifying the problems which may arise with the measurement of demand components is crucial to assess how reliable our private saving measure<sup>is.</sup> The supply of sector Oi" is comprised by the VP of the sector "i" plus **imports** (M) originated abroad in that sector (e.g. gross value of production of the industrial sector plus imports of industrial products).5 The total s Throughout the report we abstract from commercialization<sup>margin, which</sup> is the other component of the total supply at consumer prices.