4.3  Value added index[22]

To assess the effect of a change in final demand on value added, the value added index can be used. Changes in value added give an indication of the effect on GDP as GDP is the sum of value added and taxes on products. The value added index is measured as follows

(15)    

where is the input requirement for a unit increase in the final demand for industry j’s output, weighted by each industry’s ratio of value added V_i to gross output X_i. The value added index can be interpreted as an estimate of the increase in value added that results from higher final demand for industry j’s output.

The value added index is plotted in Figure 12. The increase in value added following a rise in final demand in New Zealand is largest for electricity, gas, and water; mining; public administration; dwellings, property and business services; education, health, social services etc; finance; communication services; and trade, restaurants, hotels. These industries are also generally important contributors to value added in the comparator countries. In part, services industries are high value adding industries across countries because of the high labour component in these industries.

4.4  Value added production multiplier

An alternative measure to assess the effects of a change in final demand on value added, is the value added production multiplier. The value added production multiplier is measured as follows

(16)    

where is the input requirement for a unit increase in the final demand for sector j’s output, weighted by each sector’s share in total final demand, and v_jis the share of value added in industry j’s output. The sum of value added production multipliers across industries is one. D_-j hence shows the direct and indirect contribution of a unit increase in final demand to value added in industry j relative to other industries.

The value added production multiplier weighted by final demand is plotted in Figure 13. The contribution to a unit increase in final demand in New Zealand is largest for trade, restaurants, hotels; construction; public administration; dwellings, property and business services; and education, health, social services etc. The contribution of these industries is also generally large in the other countries.

Figure 14 shows the contribution of industries to value added from a unit increase in exports. Weighting by exports increases the relative contribution of transport and storage in all countries, apart for Norway, where it remains the same. The value added production multiplier weighted by exports reveals the main exporting industries in each country. For example, the contribution to value added from exports is largest for mining in Australia and Norway, for wood, paper products, printing in Finland and machinery and equipment; and chemical, petrol, rubber etc in Germany.

Exports appear to be more diversified in New Zealand and Belgium. To measure the spread of the production multiplier we can use the coefficient of variation, which is calculated as follows

(16)    

The coefficient of variation of the value added production multiplier weighted by exports is 0.003 in New Zealand and 0.004 in Belgium. This compares to 0.007 in Denmark, 0.009 in Finland and Germany, 0.012 in Australia, 0.032 in the United Kingdom and 0.061 in Denmark. In Belgium and New Zealand, the contribution to value added from a unit increase in export demand is largest for trade, restaurants, hotels.

Figure 12:Value added index