derived by some artificial measures. A widely utilised method is that of "double deflation;" namely, the price of value added products is estimated as
(Yj - Σall i Ri)/(y - Σall i ri),
where Y and y stand for total nominal and real outputs (in value), respectively, and R and r likewise for raw material and intermediate input in current and constant prices, respectively.
Flow and Stock
It is desirable, if possible, to construct the series of capital stock as of year t (say Kt), in addition to those of capital formation in the year t (It), both of which are of course related to each other as
It = Kt- Kt-1.
The stock variable embodies the cumulative effects in value of all the social and economic activities which have preceded it. For the same reason, it also affects the present decision on how much to invest and what project to invest in.
By the same token, a distinction should ideally made between the population and labour force (stock concepts) and statistics on man-days and man-hours (flow concepts). In the case of labour statistics, the flow concept gives better representation of the quality of life, as it is related closely to the amount of leisure time which can be allotted in daily living.
The statistics of capital stock are not easily available because their estimation is time-consuming and cumbersome. Aside from the shortage of appropriate data sources, the standard of their evaluation is subject to incessant changes. In the case of labour data, by contrast, dependable flow statistics are relatively more scarce and therefore pose more problems.
The Commodity-flow Method
One could argue that a most important reason for estimating the series of industry value added (Vj) is to set up a foundation on which to construct expenditure statistics, since the derivation of value added components of social production, with the help of commodity-flow method, is almost tantamount to estimating both consumption and capital formation.
