Journal of Economics and Development Studies

Single Deflation Bias in Value Added: Verification Using Japanese Real Input–Output Tables (1960–2000)
LI Jie, KUROKO Masato

Abstract
The double deflation method as a quantitative measure of value added needs detailed input–output data and precise price indexes. An alternative, as recommended by the United Nation’s system of national accounts, is the single deflation approach. This study examines the divergence between the two methods arising from relative price changes in the intermediate and final goods industries using an input–output framework. The results reveal that estimates derived using the single deflation methods are lower when the price increase of intermediate goods is relatively large, and vice versa. Next, we conduct a detailed comparison of the two methods using Japanese input–output tables for the period of 1960–2000 with fixed prices. The comparison suggests that, except in the 1970s, when Japan faced oil shocks but also reported economic growth, intermediate goods prices decreased and those of final goods increased. In other words, the single deflation method overestimated the economic growth rate.

Full Text: PDF     DOI: 10.15640/jeds.v4n1a2