PREFACE This is the third and final module of the first volume of the manual on projection methods for integrating population concerns into development planning, which has been prepared by the Population Division of the Department of International Economic and Social Affairs of the United Nations Secretariat. The first module dealt with conceptual issues and methods for preparing demographic projections. The second module presented methods for preparing school enrolment, labour force and employment projections. This module describes techniques for preparing projections of household and other incomes, household consumption and savings and government consumption and investment. These techniques can be used to make a series of interrelated projections of demographic and socio-economic variables for comprehensive planning that take into account key linkages between population and socio-economic change. The third module is the result of a collaborative effort of the Population Division, two consultants and the Latin American Demographic Centre of the Economic Commission for Latin America and the Caribbean. Draft materials describing methods for projecting incomes were prepared by James C. Knowles. Drafts of materials for projecting consumption and savings were prepared by Robert K1einbaum. A description of the technique for projecting government expenditures was contributed by Michael V1assoff of the Latin American Demographic Centre. These drafts were revised and put in their present form by Miros1av Macura, then a staff member of the Population Division. The Population Division is grateful to Messrs. Knowles, Kleinbaum, Vlassoff and Macura for their respective contributions to this module. The preparation of this manual was made possible by the generous support of the United Nations Population Fund. This support included not only financial support but also helpful suggestions concerning the substance and presentation of the topics contained within the three modules. This assistance from the United Nations Population Fund is gratefully acknowledged by the Population Division. - iii -
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PREFACE
This is the third and final module of the first volume of the manual onprojection methods for integrating population concerns into development planning,which has been prepared by the Population Division of the Department ofInternational Economic and Social Affairs of the United Nations Secretariat. Thefirst module dealt with conceptual issues and methods for preparing demographicprojections. The second module presented methods for preparing school enrolment,labour force and employment projections. This module describes techniques forpreparing projections of household and other incomes, household consumption andsavings and government consumption and investment. These techniques can be usedto make a series of interrelated projections of demographic and socio-economicvariables for comprehensive planning that take into account key linkages betweenpopulation and socio-economic change.
The third module is the result of a collaborative effort of the PopulationDivision, two consultants and the Latin American Demographic Centre of theEconomic Commission for Latin America and the Caribbean. Draft materialsdescribing methods for projecting incomes were prepared by James C. Knowles.Drafts of materials for projecting consumption and savings were prepared byRobert K1einbaum. A description of the technique for projecting governmentexpenditures was contributed by Michael V1assoff of the Latin AmericanDemographic Centre. These drafts were revised and put in their present form byMiros1av Macura, then a staff member of the Population Division. The PopulationDivision is grateful to Messrs. Knowles, Kleinbaum, Vlassoff and Macura for theirrespective contributions to this module.
The preparation of this manual was made possible by the generous supportof the United Nations Population Fund. This support included not only financialsupport but also helpful suggestions concerning the substance and presentationof the topics contained within the three modules. This assistance from theUnited Nations Population Fund is gratefully acknowledged by the PopulationDivision.
F. Notation and equations..................................... 428
1. Indices, variables and special symbols 428
2. Equations 430
Annex. Derivation of the formulas to computechanges in the numbers of service input unitsassuming that growth in those numbers occursover discrete intervals 436
References 439
Glossary ". 440
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CONTENTS (Continued)
Tables
tiQ,.
1. An illustrative social accounting matrix 28
2. An illustrative social accounting matrix involvingsome urban-rural disaggregations 29
3. Inputs for projecting incomes at the national level;projected value added by industry, populationsize and number of households 39
4. Inputs for projecting incomes at the national level;assumptions on the various proportions and ratios 41
5. Inputs for projecting incomes at the national level:assumptions relating to transfers 42
6. Projecting wages at the national level in year 5 43
7. Projecting profits at the national level in year 5.............. 44
8. Projected factor incomes, gross incomes and disposableincomes of institutions 46
9. Projecting net indirect taxes at the national levelin year 5 48
10. Disposable incomes: aggregates, indicators of thedistribution and rates of growth ..... ~....................... 51
11. Levels and rates of growth of per capita and perhousehold disposable incomes of households 62
12. Inputs for projecting incomes at the urban level; projectedvalue added by industry, population size and number ofhouseholds 65
13. Inputs for projecting incomes at the urban level;assumptions on the various proportions and ratios 66
14. Inputs for projecting incomes at the urban level;assumptions relating to transfers 67
- xviii -
CONTENTS (Continued)
15. Inputs for projecting incomes at the rural level;projected value added by industry, population sizeand number of households 68
16. Inputs for projecting incomes at the rural level;assumptions on the various proportions and ratios............. 69
17. Inputs for projecting incomes at the rural level;assumptions relating to transfers 70
18. Projected factor incomes, gross incomes and disposableincomes of institutions in urban areas ....................... 71
B. Projected factor incomes, gross incomes and disposableincomes of institutions in rural areas ....................... 72
20. Projected factor incomes, gross incomes and disposableincomes of institutions for the entire country ............... 73
21. Disposable incomes: aggregates, indicators of thedistribution and rates of growth in urban areas 75
22. Levels and rates of growth of per capita and per householddisposable incomes of households in urban areas 76
23. Disposable incomes: aggregates, indicators of thedistribution and rates of growth in rural areas 77
24. Levels and rates of growth of per capita and per householddisposable incomes of households in rural areas 78
25.
26.
27.
Disposable incomes: aggregates, indicators of thedistribution and rates of growth for the entire country
Levels and rates of growth of per capita and per householddisposable incomes of households for the entire country
Proportionate urban-rural differentials in per capitaand per household disposable incomes for households
79
80
84
28. Calculating value added by industry for the entire country 107
29. Calculating proportions of value added going to wagesby industry for the entire country 108
- xix -
CONTENTS (Continued)
30. Calculating ratios of net indirect taxes to value addedby industry for the entire country .
31. Calculating value added by industry for urbanand rural areas .
32. Calculating proportions of value added going to wages byindustry for urban and rural areas .
33. Calculating ratios of net indirect taxes to valueadded by industry for the entire country .
34. Observations on average household expenditures by commoditygroup, average total household expenditure and averagehousehold size: averages for 10 clusters of households .
35. Observations on average household expenditures by commoditygroup, average household savings, average householddisposable income and average household size: averagefor 10 clusters of households .
36. Estimates of the coefficients of linear consumptionfunctions of the demand system with exogenoussavings for the entire country .
37. Estimates of the coefficients of log-linear consumptionfunctions of the demand system with exogenous savingsfor the entire country .
38. Computing estimates of intercept coefficients of non-linearconsumption functions of the demand system withexogenous savings for the entire country .
39. Estimates of the coefficients of linear consumptionand savings functions of the demand system withendogenous savings for the entire country .
40. Estimates of the coefficients of log-linear consumption andsavings functions of the demand system with endogenoussavings for the entire country .
- xx -
110
112
113
114
162
163
164
166
167
168
171
CONTENTS (Continued)
41. Computing estimates of slope coefficients of multiplicativeconsumption and savings functions of the demand systemwith endogenous savings for the entire country...... 172
42. Estimates of the coefficients of linear consumptionfunctions of the demand system with exogenous savingsfor urban areas 174
43. Estimates of the coefficients of linear consumptionfunctions of the demand system with exogenous savingsfor rural areas 175
44. Estimates of the coefficients of log-linear consumptionfunctions of the demand system with exogenous savingsfor urban areas 176
45. Estimates of the coefficients of log-linear consumptionfunctions of the demand system with exogenous savingsfor rural areas 177
46. Computing estimates of slope coefficients of multiplicativeconsumption functions of the demand system with endogenoussavings for urban and rural areas 178
47. Estimates of the coefficients of linear consumption andsavings functions of the demand system with endogenoussavings for urban areas 180
48. Estimates of the coefficients of linear consumption andsavings functions of the demand system with endogenoussavings for rural areas 181
49. Estimates of the coefficients of log-linear consumptionand savings functions of the demand system withendogenous savings for urban areas 183
50. Estimates of the coefficients of log-linear consumptionand savings functions of the demand system withendogenous savings for rural areas 184
51. Computing estimates of slope coefficients of multiplicativeconsumption and savings functions of the demand systemwith endogenous savings for urban and rural areas 185
- xxi -
CONTENTS (Continued)
52. Inputs for projecting household consumption and savingsfor the entire country ................................•...... 187
53. Deriving preliminary levels of average household consumptionby commodity group for the entire country: end ofprojection interval 0-5 189
54. Projected levels of average household consumption bycommodity group and average household savings 192
55. Projected levels of household consumption by commoditygroup and projected levels of household savings 193
56. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates ofhousehold consumption and savings change for theentire country 195
57. Inputs for projecting household consumption and savingsfor urban areas 205
58. Inputs for projecting household consumption and savingsfor rural areas 206
59. Deriving levels of average household consumption bycommodity group and average household savings forurban areas: end of projection interval 0-5 208
60. Projected levels of average household consumption bycommodity group and average household savings forurban areas 209
61. Projected levels of average household consumption bycommodity group and average household savings forrural areas 210
62. Projected levels of household consumption by commoditygroup and household savings for urban areas 212
63. Projected levels of household consumption by commoditygroup and household savings for rural areas 213
64. Projected levels of household consumption by commoditygroup and household savings for the entire country........... 214
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CONTENTS (Continued)
65. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates ofhousehold consumption and savings change for urban areas 217
66. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates ofhousehold consumption and savings change for rural areas 218
67. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates ofhousehold consumption and savings change for theentire country 219
68. Computing adjusted intercept coefficients for selectedlog-linear consumption functions of the demand systemwith exogenous savings for the entire country usingdata for a selected year 244
69. Computing adjusted intercept coefficients for selectedlinear consumption and savings functions of the demandsystem with endogenous savings for urban areas usingdata for a selected year 246
70. Computing adjusted intercept coefficients for selectedlinear consumption and savings functions of the demandsystem with endogenous savings for rural areas usingdata for a selected year 247
71. Illustrative data required to estimate expenditurefunctions of the linear expenditure system 280
72. Estimates of the coefficients of expenditure functionsof the linear expenditure system for the entirecountry 281
73. Illustrative data required to estimate expenditurefunctions of the extended linear expenditure system 283
74. Estimates of the coefficients of expenditure functionsof the extended linear expenditure system for theentire country 284
75. Estimates of the coefficients of expenditure functionsof the linear expenditure system for urban areas.............. 286
- xxiii -
CONTENTS (Continued)
76. Estimates of the coefficients of expenditure functionsof the linear expenditure system for rural areas 286
77. Estimates of the coefficients of expenditure functionsof the extended linear expenditure system for urban areas 288
78. Estimates of the coefficients of expenditure functionsof the extended linear expenditure system forrural areas 289
79. Inputs for projecting household consumption and savingsfor the entire country using the linear expenditure system 291
80.
81.
Deriving levels of per capita household consumptionby commodity group for the entire country, year 5
Projected levels of per capita household consumptionby commodity group and per capita household savings
292
294
82. Projected levels of household consumption by commoditygroup and household savings 296
83. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates of growthof household consumption and savings for theentire country 297
84. Inputs for projecting household consumption and savingsfor urban areas using the extended linear expendituresystem " . . .. . .. . .. . . . . . .. . . . . . . . . . . .. . .. . .. . . . 308
85. Inputs for projecting household consumption and savingsfor rural areas using the extended linear expendituresystem....................................................... 309
86. Deriving levels of per capita household consumption bycommodity group for urban areas: end of projectioninterval 0-5 310
87. Projected levels of per capita household consumptionby commodity group and per capita household savingsfor urban areas 312
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CONTENTS (Continued)
88. Projected levels of per capita household consumptionby commodity group and per capita household savingsfor rural areas 313
89. Projected levels of household consumption by commoditygroup and household savings for urban areas 314
90. Projected levels of household consumption by commoditygroup and household savings for rural areas 315
91. Projected levels of household consumption by commoditygroup and household savings for the entire country........... 316
92. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates ofhousehold consumption and savings change forurban areas 318
93. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates ofhousehold consumption and savings change forrural areas 319
94. Household consumption and savings aggregates, indicatorsof the pattern of household spending and rates ofhousehold consumption and savings change forthe entire country 320
95. Computing adjusted intercept coefficients for expenditurefunctions of the linear expenditure system for the entirecountry using data for a selected year 352
96. Computing adjusted intercept coefficients for expenditurefunctions of the extended linear expenditure system forurban areas using data for a selected year 353
97. Computing adjusted intercept coefficients for expenditurefunctions of the extended linear expenditure system forrural areas using data for a selected year 354
98. Inputs for projecting government consumption andinvestment in the education sector for the lower-primaryschool level: entire country................................. 386
- xxv -
CONTENTS (Continued)
99. Computing the numbers of service input units, by type ofservice input, for the lower-primary-school level:entire country, year 5 388
100. Calculating levels of operating expenditures, by type ofservice input, for the lower-primary-school level:entire country, year 5 389
101. Calculating total administrative expenditure for thelower-primary school level; entire country, year 5 391
102. Computing changes in the numbers of service input units,by type of service input, for the lower-primaryschool level: entire country, year 5 392
103. Calculating the numbers of service input units requiringreplacement, by type of service input, for thelower-primary school level: entire country, year 5 394
104. Projected numbers of service input units, changes inthose number and numbers of service input unitsrequiring replacement for the lower-primary schoollevel: entire country 395
105. Calculating levels of investment expenditures, by type ofservice input, for the lower-primary school level:entire country, year 5 397
106. Projected operating and investment expenditures, by type ofservice input, for the lower-primary school level:entire country, 398
107. Expenditure aggregates, structure and rates of growth forthe lower-primary school level: entire country............... 401
108. Inputs for projecting government consumption andinvestment in the health sector: urban areas 409
109. Inputs for projecting government consumption andinvestment in the health sector: rural areas 410
110. Projected numbers of service input units for the healthsector: urban areas 411
- xxvi -
CONTENTS (Continued)
111. Projected numbers of service input units for the healthsector: rural areas 412
112. Projected numbers of service input units for the healthsector: entire country 413
113. Projected operating expenditures, by type of serviceinput, for the health sector: urban areas 414
114. Projected operating expenditures, by type of serviceinput, for the health sector: rural areas 415
115. Projected operating expenditures, by type of serviceinput, for the health sector: entire country.. 417
116. Expenditure aggregates, structure and rates of growthfor the health sector: urban areas 418
117. Expenditure aggregates, structure and rates of growthfor the health sector: rural areas 419
118. Expenditure aggregates, structure and rates of growthfor the health sector: entire country........................ 420
119. Inputs for projecting government consumption and investmentfor the housing sector: urban areas 423
120. Projected numbers of service input units, changes inthose number and numbers of units requiring replacementfor the housing sector: urban areas 424
121. Projected operating and investment expenditures forthe housing sector: urban areas 425
122. Expenditure aggregates, structure and rates of growthfor the housing sector: urban areas 426
Fhures
H2.
I. Steps to project incomes at the national level............. 13
II. Total disposable income 52
- xxvii -
CONTENTS (Continued)
NQ.
III. Disposable incomes of households, corporationsand government 53
IV. Proportions of the total disposable incomes receivedby various institutions in the initial and theterminal year 56
V. Rate of growth of total disposable income 58
VI. Rates of growth of disposable incomes of institutions 59
VII. Levels of per capita and per household disposablehousehold income 61
VIII. Rates of growth of per capita and per householddisposable household income 64
IX. Total disposable income: urban, rural and national. 81
X. Proportions of disposable household income that areurban and rural 82
XI. Steps to project household consumption and savingsusing the demand system with exogenous savings 130
XII. Steps to project household consumption savings at thenational level using the demand system with endogenoussavings 143
XIII. Household consumption and household savings 196
XIV. Household consumption by broad groups (food,clothing and other) 198
XV. Proportions of disposable household income spent orsaved in the initial and the terminal years 200
XVI. Rates of growth of household consumption andhousehold savings 202
XVII. Rates of growth of household consumption by broadcommodity groups 203
XVIII. Household consumption: urban, rural and national 215
- xxviii -
CONTENTS (Continued)
XIX. Household savings: urban, rural and national 216
XX. Proportions of household consumption that are urbanand rural 221
XXI. Proportions of household savings that are urbanand rural 222
XXII. Steps to project household consumption and savings at thenational level using the linear expenditure system 260
XXIII. Steps to proj~ct household consumption and savingsat the national level using the extended linearexpenditure system 269
XXIV. Total household consumption and savings 298
XXV. Household consumption by broad groups(food, clothing and other) 300
XXVI. Proportions of disposable household income spent orsaved in the initial and the terminal year 303
XXVII. Rates of growth of total household consumptionand savings 304
XXVIII. Rates of growth of household consumption by broadcommodity groups 306
XXIX. Total household consumption: urban, rural and national ..... 321
XXX. Household savings: urban, rural and national 322
XXXI. Proportions of household consumption that are urbanand rural 323
XXXII. Proportions of household savings that are urbanand rural 325
XXXIII. Steps needed to project government consumption andinvestment at the national level 368
XXXIV. Total recurrent and investment expenditures:lower-primary school level 399
- xxix -
CONTENTS (Continued)
XXXV. Total government expenditure: lower-primary schoollevel 402
XXXVI. Proportions of total government expenditureaccounted for by total recurrent and investmentexpenditures 404
XXXVII. Rates of growth of total recurrent and investmentexpenditures: lower-primary school level 406
XXXVIII. Rate of growth in total government expenditure:lower-primary school level 407
XXXIX. Proportions of total government expenditure in thehealth sector: urban and rural 421
19. Requisite survey data and their preparation for analysis 157
20. Outputs of the method for making household consumptionand savings projections using per-householddemand systems 223
21. Glossary 253
22. Inputs for preparing projections of householdconsumption and savings using the linearexpenditure system or the extended linearexpenditure system 256
23. Types of outputs derived from projections of householdconsumption and savings using the linear expendituresystem or the extended linear expenditure system 257
24. Computational steps to project household consumptionand savings at the national level using the linearexpenditure system 259
- xxxi -
CONTENTS (Continued)
25. Computational steps to project household consumptionand savings at the national level using the extendedlinear expenditure system 271
26. Outputs of the method for making household consumptionand savings projections using the linear expendituresystem or the extended linear expenditure system 326
27. Glossary 359
28. Microcomputer version of the Long-Range PlanningModel version 2 360