are taken, a record needs to be kept, spelling out the method of estimation and the reason(s) why it has been adopted.
Value Added
The concept of value added is essential in national income accounting. This is simply because one wishes to arrive at the aggregate value of newly produced goods and services for the year while avoiding any double counting. The domestic product is the summation of all the value added records by industry for use in a region (a nation, for instance), net of intermediate transactions. As an economy develops, the network of economic agents is expanded so that inter-industry transactions are repeated many times before the final product is delivered to its end users. Hence, the degree of economic maturity of a society may be measured by the higher degree of "round-aboutness" in production. Put another way, the input-output table of the economy becomes increasingly more "congested" as the greater number of matrix elements take non-zero values (Torii 1979, ch.10).
Value added of an industry j (Vj) may be computed quite easily so long as one is equipped with all the basic data sources, i.e.
Vj = Gross industrial output (Yj) - Sum of all the intermediate inputs used by the industry (Σ all i Ri)
= Yj (1 - intermediate-input ratio (mj))
= Yj ･ value-added ratio (Vj).
Needless to say, mj = Σ, all i Ri/Yj and vj = 1-mj.
The computation of aggregate value added is facilitated if one may make use of the I0 table, since the latter easily provides information on inter-industry transactions. As one goes back to earlier days, however, such information becomes increasingly scarce. Under such a circumstance, one may have to resort to either second- or third-best alternatives, e.g., estimate intermediate input rates for selected bench-mark years where detailed production statistics are available, or estimate missing intermediate input rates by interpolations.
An important, and yet difficult problem related to the estimation of value added products is the calculation of the prices of the latter, which need to be
