Coherent accounting of industry growth: A case study of Denmark 1970–2005

Abstract

The yearly growth of an industry is commonly measured by valuing its output and its intermediate consumption at previous year's prices, forming the balance called value added, and subtracting from it previous year's value added. The result may be expressed as a percentage of previous year's value added– the common usage– or as an amount of value measured in previous year's currency, which is the approach used in this paper.

Although superficially equivalent, the two expressions lend themselves to different quantitative results and economic interpretations of an industry's long-term growth. Using the Danish case as an example, the paper demonstrates the lack of coherence of the conventional method when applied to actual figures, and suggests a remedy based on introducing the general price level as a third explicit variable, besides prices and volumes, into the decomposition method. The paper is not an exercise in index numbers, but is addressed to the practitioner of national accounts.